THE  FEDERAL  FARM  LOAN 
SYSTEM  IN  OPERATION 


A.C.WIPRUD 


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THE  UNIVERSITY 

OF  CALIFORNIA 

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THE   FEDERAL  FARM-LOAN 
SYSTEM   IN  OPERATION 


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THE  FEDERAL 

FARM-LOAN  SYSTEM 

IN  OPERATION 

By 
A.   C.   WIPRUD 

of  the  Minnesota  Bar 

Vice  President  of  the  Federal  Land  Bank 

of  Saint  Paul 


HARPER  &  BROTHERS  PUBLISHERS 
NEW  YORK  AND  LONDON 


The  Federal  Farm  Loan  System  in  Operation 


Copyright,   192 1,  by  Harper  &   Brothers 

Printed  in  the  United  States  of  America 

G-V 


%L 


To 
J.  A.  O.  FREUS 

Sincere  and  Unfaltering  Friend 


• 


CONTENTS 


Preface X1 

Introduction.     By  W.  G.  McAdoo xiii 

CHAP. 

I.  Framework  of  the  Federal  Farm-loan  System     ...      i 

Economic  conditions  preceding  rural-credit  legislation;  the 
origin  of  co-operative  land  credit;  history  of  the  enactment 
of  the  Federal  Farm  Loan  Act  and  the  object  its  authors  had 
in  view;  the  Federal  Farm  Loan  Board;  method  of  mapping 
out  districts  and  establishing  land  banks;  the  Federal  land 
banks;  the  national  farm-loan  associations,  their  purpose, 
form,  and  accomplishment. 

II.  Metiiod  of  Financing 20 

The  commercial  banks  and  the  long-term  credit  needs  of  the 
farmer;  funds  that  are  available  for  long-term  investment; 
original  capital  stock  of  the  land  banks;  government  aid 
feature;  further  stock  subscriptions  to  capital  of  the  land 
banks;  bond  issue,  method  and  limitation;  sale  of  bonds,  in- 
cluding original  methods  not  specifically  contemplated  by 
law;  decision  of  the  Supreme  Court  of  the  United  States  on 
the  constitutionality  of  the  Farm  Loan  Act;  purchase  of 
Federal  farm-loan  bonds  by  the  United  States  Treasury. 

III.  Federal  Farm-loan  Bonds       37 

Debenture  and  land-mortgage  bonds;  history  of  early  de- 
benture companies  in  the  United  States;  fundamental  differ- 
ences between  the  farm-loan  system  and  the  early  debenture 
companies ;  practical  advantages  of  Federal  farm-loan  bonds 
as  an  investment;  the  security  underlying  a  Federal  farm- 
loan  bond;  standardization  of  bond  issues;  the  tax-exempt 
feature;  stability  of  a  land-mortgage  bond,  citing  compara- 
tive quotations  on  Landschaften  and  Imperial  bonds  in 
Germany. 

IV.  Federal  Farm  Loans 49 

Definition  of  a  farm-mortgage  loan;  fixed  capital  for  the 
business  man  and  for  the  farmer;  long-term  credit  needs  of 


CONTENTS 

CHAP.  PAGE 

the  American  farmer;  distinctive  features  of  the  Federal 
farm-loan  system — that  is,  low  uniform  interest  rate,  long- 
term  loan,  and  amortization  plan  of  repayment  of  loan;  ad- 
vantages of  a  Federal  farm  loan;  rulings  of  the  Farm  Loan 
Board;  purposes  for  which  Federal  farm  loans  have  been 
made. 

V.  Federal  Farm  Loans  (Continued) 63 

Methods  of  farm  appraisal;  factors  involved  in  valuing 
security  for  a  Federal  farm  loan;  the  loan  committee  of  the 
national  farm-loan  association;  the  land-bank  appraiser; 
conservative  record  of  appraisals ;  insurance;  cost  of  making 
a  Federal  farm  loan,  how  defrayed;  farm-loan  system  estab- 
lished for  small  farmer;  tho  tenant  farmer;  Federal  farm 
loans  applied  for,  canceled,  or  rejected,  and  made;  standard 
of  loaning  service. 

VI.  Co-operative    Features    of   the    Federal   Farm-loan 

System 78 

The  Federal  farm-loan  system  essentially  an  American  sys- 
tem; co-operative  structure  of  the  national  farm-loan  asso- 
ciation; practical  advantage  of  subscriptions  to  capital  stock 
by  farmers  who  borrow;  control  of  association  lodged  in 
members;  personal  liability  of  shareholders;  associations 
may  accept  deposits  under  certain  conditions;  members  of 
association  may  co-operate  for  other  purposes;  co-operative 
structure  of  land  banks  and  system  as  a  whole;  forming  of 
associations  dispelled  prevailing  opinion  that  American  farm- 
ers would  not  co-operate;  problems  in  organizing  associa- 
tions; number  of  associations  in  the  United  States;  organi- 
zation of  association  by  shiftless  and  unworthy  farmers; 
attitude  of  local  bankers,  citing  experience  of  a  banker  in  the 
seventh  land-bank  district;  occupation  of  secretary-treas- 
urers;  the  local  bank  and  the  association. 

VII.  Service  Aside  from  Making  Loans 92 

Broad  interpretation  placed  on  the  Farm  Loan  Act;  the  land 
banks  as  financial  agents  of  the  United  States;  the  land 
banks  assist  in  the  fiscal  operations  of  the  government;  co- 
operation between  the  United  States  department  of  agricul- 
ture and  the  Federal  farm-loan  system ;  service  rendered  by 
the  legal  department  of  the  land  banks;  additional  services 
rendered  by  the  land  banks  in  improving  economic  condition 
of  farmers;    the  social  and  economic  problems  of  our  rural 


CONTENTS 

CHAP.  PAGE 

communities;  statistics  show  decrease  in  rural  and  increase 
in  urban  population;  underlying  causes  for  cityward  trend, 
the  remedy,  and  the  part  the  Federal  farmdoan  system  plays. 

Appendix  A l°3 

The  joint-stock  land  banks. 

Appendix  B II! 

The  text  of  the  Federal  Farm  Loan  Act. 

Appendix  C 229 

Bibliography. 

Appendix  D 236 

Opinion  of  the  United  States  Supreme  Court  in  the  case  of 
Charles  E.  Smith  vs.  the  Kansas  City  Title  &  Trust  Co. 

Index 259 


PREFACE 

The  work  here  presented  is  the  outgrowth  of  a 
paper  read  before  a  elass  in  Economie  History  in  the 
School  of  Business,  University  of  Minnesota,  in  De- 
cember, 1919. 

In  the  preparation  of  the  statistical  material  the 
author  has  had  at  his  disposal  the  statements  and 
documents  which  have  been  issued  by  the  Federal 
Farm  Loan  Board  and  the  several  land  banks  since 
the  establishment  of  the  Federal  farm-loan  system. 
These  have  been  supplemented  by  such  other  mate- 
rial as  appears  in  the  Bibliography  (Appendix  C)  and 
the  author's  observations  as  an  official  of  the  land 
bank  located  in  St.  Paul,  Minnesota. 

The  true  object  of  the  Federal  Farm  Loan  Act  is 
not  generally  understood,  though  the  processes  of  its 
operation  are  not  difficult  to  comprehend.  If  this 
presentation  assists  in  a  measure  toward  a  general 
understanding  of  the  real  object  and  worth  of  this 
new  rural-credit  system,  it  has  served  a  purpose. 

The  author's  thanks  are  due  to  the  officers  of  the 
Federal  Land  Bank  of  Saint  Paul,  and  especially  to 
President  E.  G.  Quamme,  for  their  many  kindly  sug- 
gestions; to  Prof.  N.  S.  B.  Gras,  of  the  University  of 
Minnesota,  who  assisted  in  the  arrangement  of  this 
work;  and  to  Miss  Marian  Rubins,  of  the  University 
of  Minnesota,  for  criticism  in  the  preparation  of  the 
manuscript  and  the  reading  of  the  proof. 

A.  C.  Wiprud. 

St.  Paul,  Minnesota. 
January,  IQ2I. 


INTRODUCTION 

It  is  with  pleasure  that  I  accept  Mr.  Wiprud's  invi- 
tation to  write  an  introduction  to  his  interesting  and 
useful  essay  on  the  Federal  Farm-loan  System. 

The  public  is  not  sufficiently  informed  about  this 
great  system  of  agricultural  credit  which  is  one  of  the 
crowning  achievements  of  the  Wilson  administration. 
Even  the  farmers  who  are  its  chief  beneficiaries  lack 
adequate  knowledge  of  the  law  and,  therefore,  are 
not  realizing  the  full  measure  of  its  benefits.  Every 
book  and  publication  which  disseminates  reliable  in- 
formation about  this  farm  credit  system  is  perform- 
ing useful  service.  Mr.  Wiprud's  contribution  is 
therefore  very  opportune. 

By  the  terms  of  the  law  it  fell  to  my  lot,  as  Secretary 
of  the  Treasury  at  that  time,  to  become  chairman  (ex- 
officio)  of  the  Federal  Farm  Loan  Board,  and  together 
with  four  able  men  who  were  appointed  members  of 
that  board,  George  W.  Norris  of  Pennsylvania, 
Charles  E.  Lobdell  of  Kansas,  W.  S.  A.  Smith  of 
Iowa,  and  Herbert  Quick  of  West  Virginia,  to  hold 
hearings  throughout  the  United  States,  to  divide  the 
country  into  twelve  Federal  farm-loan  districts,  and 
to  establish  a  Federal  land  bank  in  each. 

The  banks  were  organized  in  the  latter  part  of  1916. 
Before  they  had  gotten  well  under  way  the  United 
States  became  involved  in  the  European  war,  so  that 


sciv  INTRODUCTION 

the  system  has  not  had  a  fair  chance  to  function 
under  conditions  of  peace  and  normality.  Notwith- 
standing this  fact,  the  banks  have  made  encouraging 
progress,  as  is  evidenced  by  the  great  number  of  long- 
time amortization  mortgage  loans  which  have  been 
placed  among  the  farmers  of  the  country. 

During  the  years  191 7  and  1918,  when  the  demands 
occasioned  by  the  war  for  credit  were  so  imperative  and 
controlling,  it  was  necessary  to  stop  public  offerings 
of  Federal  farm-loan  bonds,  but  it  was  essential  to 
keep  the  land  banks  functioning  so  that  the  farmers 
could  secure  needed  credits.  The  Congress,  therefore, 
authorized  the  Secretary  of  the  Treasury  to  purchase, 
during  the  years  191 7  and  191 8,  not  exceeding  $100,- 
000,000  per  annum  of  bonds  of  the  Federal  land  banks. 
While  this  took  care  partially  of  the  emergency,  it 
destroyed,  for  the  time  being,  the  market  for  land-bank 
bonds,  and  postponed  the  diffusion  of  that  general 
knowledge  of  Federal  farm-loan  securities  which  the 
distribution  of  the  bonds  among  private  investors  would 
have  produced  and  which  is  so  essential  to  the 
successful  operation  of  the  system. 

Now  that  the  banks  have  resumed  business,  it  is 
more  than  ever  important  that  the  investing  public, 
as  well  as  the  farmers,  shall  have  a  comprehensive 
understanding  of  this  great  system  of  agricultural 
credit.  While  I  shall  not  attempt  to  discuss  it 
in  detail,  I  should  like  to  call  attention  to  one 
point,  namely,  that  two  kinds  of  banks  are  authorized 
under  the  farm-loan  law :  first,  the  Federal  land  banks, 
twelve  of  which  are  in  operation  and  cover  by  their 
jurisdiction  the  whole  of  continental  United  States; 


INTRODUCTION  xv 

and  second,  the  joint-stock  land  banks,  which  are 
voluntary  organizations  and  are  permitted  to  do  busi- 
ness only  in  the  state  where  their  principal  office  is 
located,  and  in  one  contiguous  state.  The  business 
of  each  class  of  banks  is  restricted  to  the  making  of 
first  mortgage  loans  on  farm  lands  on  the  amortiza- 
tion plan  only. 

The  Federal  land  banks  are  largely  government  in- 
stitutions because  practically  the  whole  of  their  capi- 
tal stock  was  subscribed  by  the  United  States  Treas- 
ury, and  until  that  is  repaid  the  Federal  farm-loan 
board  exercises  a  determining  influence  upon  their 
operations.  These  land  banks  can  make  loans  only 
through  the  agency  of  what  is  called  National  farm- 
loan  associations,  which  are  organizations  of  farmers 
who  wish  to  borrow  money.1  This  is  the  so-called 
co-operative  plan  of  farm  credits.  It  possesses  many 
meritorious  features  and  is  or  ought  to  be  the  back- 
bone of  any  agricultural  credit  system.  The  primary 
purpose  of  the  Federal  land  banks  is  to  take  care  of 
the  smaller  loans  which  may  be  needed  by  farmers 
who  are  actually  engaged  in  cultivating  their  farms, 
and  they  are  not  permitted  to  lend  to  any  one 
borrower  more  than  $10,000.  Their  field  of  operation 
is  therefore  limited.  But  agriculture  in  this  country 
has  been  developed  on  such  a  large  scale  that  a  sys- 
tem of  credit  which  cannot  accommodate  borrowers 
who  want  loans  in  excess  of  $10,000  is  manifestly  in- 
adequate. The  Congress  therefore  very  wisely  au- 
thorized another  class  of  banks — the  so-called  joint- 

1  Where  no  Farm  Loan  Association"  exists,  the  Federal  Farm  Loan 
Board  may  appoint  agencies  through  which  the  Federal  Land  Banks 
may  make  loans. 


xvi  INTRODUCTION 

stock  land  banks.  They  depend  wholly  upon  private 
initiative  and  capital  for  their  organization  and  are 
permitted  to  make  loans  not  exceeding  $50,000  x  to 
any  one  borrower.  So  that,  with  the  Federal  land 
banks  and  the  joint-stock  land  banks,  the  Congress 
has  established  an  agricultural  credit  system  with 
authority  to  make  loans  to  individual  borrowers  se- 
cured by  long-time  mortgages  on  farm  lands,  up  to,  but 
not  exceeding,  $50,000.  During  the  war  with  Germany 
the  operations  of  the  joint-stock  land  banks,  like  those 
of  the  Federal  land  banks,  were  greatly  restricted. 
Now,  however,  they  are  free  to  do  business  again.  I 
am  sorry  that  Mr.  Wiprud  has  not  brought  out  more 
fully  the  advantages  of,  as  well  as  the  necessity  for,  the 
joint-stock  land  banks,  because  the  field  for  each  class 
of  banks  is  so  large,  and  they  complement  each  other 
so  beneficially  that  our  agricultural  industry  will  not 
be  satisfactorily  served  without  both. 

Not  only  did  the  war  arrest  the  progress  of  the 
Federal  land  banks  and  the  joint-stock  land  banks, 
but  shortly  after  the  armistice  an  attack  was  made  by 
certain  selfish  interests  on  the  constitutionality  of  the 
Federal  farm-loan  law.  This  started  a  long  litigation 
which  finally  resulted  in  a  decision  (February  28,  192 1) 
of  the  Supreme  Court  of  the  United  States  sustaining 
the  validity  and  constitutionality  of  the  Farm  Loan  Act. 
Between  the  war  in  Europe,  which  suspended  the  oper- 
ation of  the  land  banks,  and  the  war  in  the  Federal 
courts,  which  put  them  out  of  business  until  the  recent 
decision  of  the  Supreme  Court,  the  Federal  and  joint- 
stock  land  banks  have  had  small  chance  to  serve  the 

1  The  act  imposes  no  limitations  but  the  regulations  of  the  Federal 
Farm  Loan  board  places  this  restriction. 


INTRODUCTION  xvii 

country,  but  the  system  was  founded  on  right  and 
necessity,  and  has,  therefore,  survived. 

The  exemptions  from  taxation  of  the  mortgages 
made  by  farmers  to  the  banks,  and  of  the  bonds  issued 
by  the  banks  upon  the  security  of  such  mortgages,  was 
the  chief  point  of  attack  in  the  courts.  But  these 
exemptions  must  be  maintained  because  they  are  abso- 
lutely necessary  if  the  farmers  are  to  be  assured  an 
ample  supply  of  long-time  credits  at  reasonable  rates  of 
interest.  There  is  no  reason  why  the  farmers  should 
not  receive  the  benefits  of  these  tax  exemptions  on  the 
long-time  amortization  loans  authorized  by  the  law. 
They  cannot  otherwise  command  the  necessary  capi- 
tal at  reasonable  rates  to  carry  on  their  vital  opera- 
tions, and  certainly  the  importance  of  their  business 
entitles  them  to  as  favorable  accommodations  as  are 
granted  to  other  industries.  So  long  as  states  and 
municipalities  make  their  bonds  free  from  all  taxation, 
the  bonds  of  the  land  banks  are  brought  into  competi- 
tion with  such  tax-exempt  securities ;  therefore  the  tax 
exemption  must  be  extended  to  the  bonds  of  the 
land  banks,  if  the  farmer  is  to  get  the  long-time 
credit  he  needs  at  reasonable  rates  of  interest  and 
on  reasonable  terms.  Happily  this  question  was 
settled  by  the  decision  of  the  United  States  Supreme 
Court  and  the  way  is  now  cleared  for  the  operation  of 
the  Federal  land  bank  system  upon  a  scale  which  ought 
to  bring  great  and  lasting  benefits  to  the  farm  industry 
of  the  United  States. 

It  is  a  strange  thing  that  throughout  American  his- 
tory so  little  constructive  and  comprehensive  work  has 
been  done  to  conserve  the  agricultural  industry  of  the 


xviii  INTRODUCTION 

country.  This  industry  is  absolutely  vital  to  the 
existence  and  prosperity  of  the  people.  Farmers  as  a 
class  do  not  want  superior  advantages  or  benefits  con- 
ferred upon  them  by  legislation.  They  do  want  equal 
opportunity,  and  to  get  that  equal  opportunity  they 
must  have  sufficient  credit  facilities  at  all  times,  and 
these  must  be  available  to  them  on  as  reasonable  terms 
and  at  as  low  rates  of  interest  as  are  allowed  to  our 
business  men  and  manufacturers,  due  regard  being 
had,  of  course,  to  the  security  offered  and  to  the  con- 
ditions applicable  to  each.  In  other  words,  agricul- 
tural credit  should  be  as  available  as  commercial 
credit,  and  upon  equally  favorable  terms  all  things 
considered. 

This  new  agricultural  credit  system,  the  Federal 
farm-loan  system,  is  a  genuine  blessing  to  the  farmers 
of  the  United  States.  It  will  prove  its  usefulness  more 
and  more  as  it  grows  and  develops.  We  must  see  to 
it  that  neither  selfish  nor  designing  interests,  nor  sub- 
servient nor  crooked  politicians,  shall  be  permitted  to 
emasculate  or  weaken  or  destroy  it.  What  the  farmers 
have  gained  after  years  of  hard  and  painful  fighting, 
they  must  keep.  The  farm-loan  system  can  be  ex- 
tended and  enlarged  by  judicious  legislation  so  that 
it  will  be  more  serviceable  to  the  farmer  than  the  exist- 
ing law.  To  cite  an  instance,  I  think  the  Act  should 
be  amended  so  as  to  permit  the  Federal  Lands  Banks 
to  make  loans  up  to  $25,000. 

But  a  wonderful  beginning  has  been  made,  and 
with  sympathetic  and  intelligent  administration  by 
the  Farm  Loan  Board  and  friendly  co-operation  on 
the  part  of  the  Congress  and  the  President  of  the 


INTRODUCTION  xix 

United  States,  this  great  system  of  agricultural  credit 
will  become  a  very  rock  of  Gibraltar  for  agricultural 
prosperity.  If  this  is  now  supplemented  by  an  intelli- 
gent system  of  warehousing  and  by  co-operative  or- 
ganizations for  the  financing,  marketing,  and  distribu- 
tion of  farm  products,  a  new  and  brighter  future  will 
open  to  the  American  farmer. 

W.  G.  McAdoo. 

New  York,  June,  1921, 


THE  FEDERAL  FARM-LOAN 
SYSTEM  IN  OPERATION 


THE   FEDERAL   FARM-LOAN 
SYSTEM   IN   OPERATION 


FRAMEWORK   OF   THE    FEDERAL    FARM-LOAN    SYSTEM 

THE  Federal  farm-loan  system  was  provided  for 
by  an  Act  of  Congress,  in  191 6,  and  established 
in  the  same  year.  Its  purpose  is  to  supply  to  Ameri- 
can farmers  the  long-term  credit  which  will  enable 
them  to  develop  and  expand  their  farming  operations. 
The  establishment  of  a  national  rural-credit  system 
in  this  country  was  not  the  work  of  a  small  group  of 
men,  nor  the  result  of  merely  a  few  years  of  agitation 
and  effort.  The  subject  had  been  discussed  periodi- 
cally by  our  statesmen,  bankers,  economists,  and  oc- 
casionally by  our  farmers,  since  the  early  days  of  our 
history.  It  was  in  the  decade  preceding  the  enact- 
ment of  the  law,  however,  that  public  sentiment  was 
crystallized  to  such  a  degree  as  to  bring  about  official 
action.  The  previous  lack  of  progress  or  improvement 
in  our  rural  credit  facilities  is  attributable  to  eco- 
nomic conditions,  chief  of  them  our  abundance  of 
cheap  land.  So  long  as  the  West  beckoned  to  the 
land  hungry,  and  especially  to  those  who  could  not 


2  THE   FEDERAL  FARM-LOAN 

afford  a  farm  in  the  well-developed  sections  of  the 
country,  the  problems  of  rural  finance  had  been  of 
secondary  importance,  because  it  was  possible  for 
anyone,  whether  his  means  were  great  or  small,  to 
secure  some  land  to  farm.  Within  the  present  gen- 
eration, however,  the  extensive  public  domain  of  the 
West  has  been  settled,  and  with  this  settlement  has 
come  the  rise  in  land  values.1  Increased  land  values 
called  for  larger  amounts  of  capital  and  more  inten- 
sive methods  of  farming.  Attention  then  turned  to 
the  subject  of  farm  finance,  which  became  a  question 
of  first  importance. 

Co-operative  credit  for  agricultural  purposes  orig- 
inated in  the  United  States,  and  not  in  Europe  as  is 
popularly  supposed.  The  idea  was  conceived  in  Con- 
necticut. In  1732  sixty-one  landowners  of  the  colony 
of  Connecticut  organized  the  New  London  Society 
United  for  Trade  and  Commerce.2  They  paid  for 
stock  subscribed  by  giving  their  promissory  notes 
secured  by  mortgages  on  their  lands.  The  only  bor- 
rowers from  the  society  were  its  stockholders,  who 
had  complete  control  of  its  management.    The  char- 


1  There  are  still  tracts  of  public  lands  open  for  settlement  within 
irrigated  districts.  These  lands,  however,  have  not  been  attractive 
to  the  settler,  largely  because  he  finds  the  price  of  the  land  and  the 
cost  of  operating  it  high,  and  because  he  has  insufficient  knowledge 
of  the  methods  employed  in  farming  irrigated  land.  '  The  comparatively 
high  prices  charged  for  irrigated  land  are  not  indicative  of  the  value 
of  land  in  the  vicinity,  except  as  such  land  is  itself  irrigated,  and 
cannot  be  attributed  merely  to  settlement.  The  same  problems  of 
financing  exist  here,  for  an  irrigated  farm,  even  more  than  other  high- 
priced  land,  must  be  operated  intensively. 

1  The  public  Records  of  the  Colony  of  Connecticut,  vol.  vii,  p.  390. 

See  also: 

"Currency  and  Banking  in  the  Province  of  the  Massachusetts 
Bay,"  by  Davis,  in  American  Economic  Association  Quarterly,  May, 
1 901. 


SYSTEM   IN  OPERATION  3 

ter  granted  it  by  the  Connecticut  Assembly  author- 
ized it  to  emit  against  these  secured  notes  bills  with- 
out interest,  which  became  popular  immediately  and 
circulated  freely  as  money.  This  effort,  however,  was 
discontinued,  owing  to  the  opposition  of  the  govern- 
ment of  the  colony.  And  to  European  countries,  par- 
ticularly Germany,  is  accorded  the  honor  of  establish- 
ing rural-credit  systems  and  bringing  them  to  a  high 
degree  of  efficiency  and  usefulness. 

Since  the  venture  of  the  Connecticut  landowners, 
a  few  attempts  have  been  made  to  establish  state 
rural  credit  institutions  by  legislative  action,  but  fur- 
ther efforts  have  been  discouraged,  owing  largely  to  the 
lack  of  interest  on  the  part  of  the  farmer-borrowers 
and  to  the  imperfections  of  the  earlier  systems.  The 
efforts  that  were  made,  however,  stimulated  certain 
individuals  who  were  interested  in  improving  farm- 
credit  facilities  and  introducing  co-operative  credit 
into  the  United  States,  to  discuss  through  the  press 
and  otherwise  what  had  been  accomplished  in  Euro- 
pean countries  and  on  this  continent.1 

This  work  was  aided  by  official  investigations,  the 
earliest  publication  on  the  subject  appearing  in  1892.2 
By  1 910  the  question  was  beginning  to  be  widely 
discussed.      In    March,    191 2,    the   President   of   the 

1  "The  Sehulze-Delitzsch  Banks,"  by  Villard,  in  Journal  of  Social 
Science,   1 869. 

"Currency  and  Banking  in  the  Province  of  the  Massachusetts 
Bay,"  by  Davis,  in  American  Economic  Association  Quarterly,  Decem- 
ber, 1898,  and  May,  1901. 

"Co-operative  Credit  Associations  of  the  Province  of  Quebec,"  by 
McPherson.  Thesis  submitted  to  the  faculty  of  the  Graduate  School 
of  Arts  and  Literature  of  the  University  of  Chicago  (1910). 

For  other  works  see  the  Bibliography. 

1  "Co-operative  Credit  in  Certain  European  Countries,"  by  Peters, 
in  United  States  Department  of  Agriculture  Bulletin. 


4  THE    FEDERAL   FARM-LOAN 

United  States,  through  the  Secretary  of  State,  in- 
structed the  embassies  in  Germany  and  Italy  and 
the  legations  in  Belgium  and  the  Netherlands  to 
conduct  investigations  and  make  report  on  land  credit 
in  those  countries.  In  the  year  1913  Congress  au- 
thorized the  appointment  of  the  United  States  Com- 
mission to  co-operate  with  the  American  Commission 
appointed  the  previous  year  by  the  Southern  Com- 
mercial Congress,1  for  the  purpose  of  investigating 
co-operative  agricultural  organizations  and  institu- 
tions in  Europe.  The  reports  of  these  commissions 
contain  a  fund  of  information  bearing  on  rural  credit 
institutions  in  European  countries.2 

The  report  of  the  United  States  Commission3  in- 
cluded a  draft  of  a  proposed  rural-credit  law,  which 
constituted  the  formal  recommendation  of  the  com- 
mission, and  was  known  as  the  Moss-Fletcher,  or 
Commission,  bill.  This  bill  authorized  the  establish- 
ment of  small  and  independent  joint-stock  land  banks 
(originally  to  be  organized  with  a  minimum  capital 
stock  of  $10,000,  which  was  later  raised  to  $100,000), 
with  power  to  issue  bonds  against  first  mortgages  held 
by  them  on  farm  lands.  These  banks  were  to  be 
under  Federal  supervision,  and  were  intended  to  make 
loans  direct  to  farmers.  As  a  result  of  the  work  of 
the  congressional  committees  on  banking  and  cur- 

1  The  Southern  Commercial  Congress,  at  its  convention  held  in 
April,  191 2,  at  Nashville,  Tennessee,  authorized  the  appointment  of 
a  national  representative  commission  to  visit  Europe  for  the  purpose  of 
studying  the  various  rural  credit  systems  in  operation  there.  This 
commission  was  composed  of  about  seventy-five  delegates,  represent- 
ing twenty-nine  states  and  four  provinces  of  Canada,  and  was  known 
as  the  American  Commission. 

2  Senate  Documents  Nos.  214,  261,  and  380,  Sixty-third  Congress. 
8  Senate  Document  No.  380    (January  29,  1914)- 


SYSTEM   IN   OPERATION  5 

rency  during  the  years  1913  and  1914,  there  was 
formulated  and  introduced  into  Congress  what  be- 
came known  as  the  Hollis-Bulkley,  or  Committee, 
bill.  This  bill  provided  for  not  less  than  five  regional 
Federal  land  banks,  with  power  of  issuing  bonds  sim- 
ilar to  that  provided  for  in  the  Commission  bill. 
Farmers  desiring  loans  from  such  banks,  however, 
were  not  to  obtain  loans  direct,  but  would  be  com- 
pelled to  become  members  of  local  farm-loan  associa- 
tions, through  which  loans  would  be  obtained  from 
the  land  banks.  No  action  was  taken  on  either  the 
Commission  or  the  Committee  bill,  but  the  bill  finally 
enacted  into  law  contained  the  outstanding  features 
of  both,  and  therefore  has  been  termed  a  compromise. 
On  account  of  disagreement  in  Congress  with  refer- 
ence to  the  matter  of  Federal  aid  in  providing  rural- 
credit  facilities,  the  whole  subject  was  referred  to  a 
joint  congressional  committee  on  rural  credits  in  the 
spring  of  191 5.  The  bill  drafted  by  this  joint  commit- 
tee, with  certain  changes,  became  law,  July  17,  1916, 
and  is  known  as  the  Federal  Farm  Loan  Act. 

The  Act  is  a  clear,  concise,  and  comprehensive  piece 
of  legislation.  The  language  is  specific  and  not  diffi- 
cult of  interpretation.  This  is  not  generally  the  re- 
sult where  so  many  individuals  and  groups  of  individ- 
uals in  and  out  of  Congress  have  asserted  their  ideas 
and  demanded  that  they  be  incorporated  into  law. 
It  is  a  commonly  known  fact,  for  example,  that  the 
Federal  Reserve  Act  has  been  difficult  of  interpreta- 
tion, and  Congress  has  found  it  necessary  to  amend 
the  Act  to  make  clear  its  meaning.  The  farm-loan 
system  has  functioned  successfully  without  any  cor- 


6  THE   FEDERAL  FARM-LOAN 

rective  or  interpretative  amendments;  in  fact,  the 
law  was  not  amended  until  May  26,  1920,  almost  four 
years  from  the  date  of  its  passage.1  At  that  time  a 
series  of  amendments  was  recommended  to  Congress 
by  the  Farm  Loan  Board  as  being  "desirable  in  the 
direction  of  eliminating  expense  and  lost  motion."  2 
It  was  practical  experience  in  the  operation  of  the 
system  that  had  demonstrated  them  to  be  necessary, 
and  they  cannot,  therefore,  be  considered  the  result  of 
faulty  drafting  or  poor  judgment  on  the  part  of  the 
authors  of  the  Act. 

The  purpose  of  the  Farm  Loan  Act  is  to  furnish  to 
our  agricultural  industry  a  channel  through  which  it 
can  market  its  security  in  accordance  with  its  needs. 
What  is  meant  by  the  credit  needs  of  agriculture  will 
be  discussed  later.3  It  is  sufficient  for  the  present  to 
state  that  credit  in  the  form  best  adapted  to  the  wants 
of  American  farmers  had  not  been  previously  pro- 
vided; in  fact,  their  needs  had  been  subordinated  to 
the  demands  of  mortgage  houses  and  other  institu- 
tions dealing  in  mortgage  loans.  The  question  was 
not  whether  a  particular  loan  would  enable  a  farmer 
to  carry  out  his  individual  project,  no  matter  how 
beneficial  it  might  be  in  the  development  of  his  farm, 
but  how  money  could  be  placed  to  the  best  possible 
advantage  for  the  individual  or  institution  having 
money  to  loan.  That  this  worked  a  hardship  on  the 
farmer  is  apparent,  for  not  only  was  he  compelled  to 
accept  money  under  terms  and  conditions  which  in 


1  Public  Document  No.  182,  Sixty-sixth  Congress. 

2  Third  Annual  Report  of  the  Federal  Farm  Loan  Board,  p.  18. 


1  See  chaps,  iv  and  v. 


SYSTEM   IN   OPERATION  7 

many  instances  were  unnecessarily  burdensome,  but 
he  was  never  certain  that  he  could  secure  funds  when 
they  were  most  needed. 

The  Federal  farm-loan  system  attempts  to  remedy 
this  situation  to  the  mutual  benefit  of  the  farmer 
and  the  lender.  The  necessary  machinery  is  to  be 
operated  under  the  supervision  of  the  government. 
In  the  Treasury  Department  of  the  United  States  is 
established  the  Federal  Farm  Loan  Bureau,  supervised 
by  the  Federal  Farm  Loan  Board,  in  which  the  con- 
trol of  the  entire  system  is  centralized.  The  members 
of  this  board  consist  of  the  Secretary  of  the  Treasury, 
who  acts  as  chairman  ex  officio,  and  four  members 
appointed  by  the  President  of  the  United  States. 
These  four  members  are  appointed  to  serve  a  term  of 
eight  years. 

The  initial  task  of  the  Farm  Loan  Board  was  of 
lasting  consequence.  Continental  United  States,  ex- 
cluding Alaska,  was  to  be  divided  into  twelve  loaning 
districts  and  a  Federal  land  bank  established  in  each 
district,  with  its  principal  office  located  in  such  city 
within  the  district  as  the  board  should  designate. 
Though  the  Farm  Loan  Act  provides  for  the  read- 
justment of  the  boundaries  of  these  districts  from  time 
to  time,  it  is  hardly  likely  that  any  readjustment  will 
be  made,  in  view  of  the  work  that  would  be  involved 
in  transferring  loans,  records,  and  documents  from  one 
district  to  another,  as  well  as  in  the  complete  revision 
in  methods  employed  within  each  district.  In  any 
organization  of  nation-wide  scope,  a  readjustment  of 
its  principal  units  necessitates  a  more  detailed  revision 
of  its  whole  mechanism.    The  judgment  of  the  Farm 


8  THE   FEDERAL   FARM-LOAN 

Loan  Board  in  mapping  out  the  land-bank  districts 
in  the  first  instance  was,  therefore,  virtually  final. 

A  series  of  hearings  was  conducted  by  the  board 
during  the  months  of  August,  September,  October, 
and  November,  1916,  for  it  was  early  decided  that  the 
"farm-loan  needs"  of  the  country  could  not  be  prop- 
erly determined  from  reports  and  statistics.  During 
the  above  period  fifty-three  hearings  were  held  in 
forty-four  states,  at  which  farmers,  as  well  as  officers 
of  farmers'  organizations,  county  agents  of  the  Depart- 
ment of  Agriculture,  local  bankers,  and  others  had 
an  opportunity  to  submit  such  information  as  bore  on 
the  needs  of  their  community.  In  this  manner  the 
Farm  Loan  Board  secured  a  mass  of  maps,  charts,  and 
statistical  information  of  great  value  and  interest. 

In  determining  the  size  and  boundaries  of  the  Fed- 
eral land-bank  districts,  the  Farm  Loan  Board  took 
into  consideration  the  following  nine  factors: 

1.  Total  land  area. 

2.  Area  of  land  in  farms. 

3.  Area  of  improved  land  in  farms. 

4.  Number  of  farms  mortgaged  at  that  time. 

5.  Amount  of  outstanding  mortgage  indebtedness. 

6.  Value  of  farm' lands  and  buildings. 

7.  Gross  value  of  farm  products. 

8.  Total  population. 
o.  Rural  population. 

The  results  obtained  by  averaging  these  factors  the 
board  modified  by  two  other  considerations — first, 
whether  the  prevailing  rate  of  interest  in  the  state 
in  question  was  such  as  would  be  likely  to  lead 
to  a  rapid  shifting  of  farm  loans  from  existing  hold- 
ers to  Federal  land  banks,  and,  second,  whether  the 


SYSTEM    IN   OPERATION  9 

proposed  district  was  well  developed  agriculturally, 
or  whether  its  agricultural  resources  were  still  largely 
undeveloped.  Consideration  was  also  given  to  argu- 
ments in  favor  of  creating  "one-crop"  districts  or  dis- 
tricts in  which  farming  conditions  were  similar.  It 
was  the  judgment  of  the  board,  however,  that  what- 
ever advantages  could  be  claimed  for  districts  so 
established  in  the  making  of  appraisements  and  pass- 
ing upon  loans  by  the  directors  of  a  bank,  they  were 
overbalanced  by  the  fact  that  a  crop  failure  in  such 
districts  "might  involve  an  undue  proportion  of  fore- 
closures and  temporarily  prejudice  the  credit  of  the 
Federal  land  bank  of  that  district."  The  board  was 
also  of  the  opinion  that  those  states  whose  farm-loan 
securities  were  not  well  or  favorably  known  would  be 
better  served  if  combined  with  states  more  favored 
in  this  respect  than  if  a  district  was  composed  entirely 
of  such  less-favored  states.1 

The  principal  factors  in  determining  within  each 
district  the  city  in  which  the  land  bank  should  be 
located  were: 

1.  A  reasonable  approximation  to  the  geographical  center. 

2.  Prompt  and  frequent  train  and  mail  service. 

3.  Climatic  conditions  that  would  not  impair  the  efficiency  of 
the  force. 

4.  Congenial  environment. 

The  board  expressed  itself  as  being  opposed  to  the 
location  of  the  banks  in  such  centers  of  population  as 
New  York  or  Chicago,  for  the  reason  that  the  principal 
function  of  the  banks  was  to  serve  the  "farm-loan 
needs"  of  the  country  and  they  should  therefore  be 

1  First  Annual  Report  of  the  Federal  Farm  Loan  Board,  pp.  9-10. 


io  THE   FEDERAL  FARM-LOAN 

located  in  cities  having  a  more  active  interest  in  agri- 
culture.1 

The  Farm  Loan  Board  is  assisted  by  farm-loan 
registrars,  one  appointed  for  each  land-bank  district, 
to  supervise  the  issue  of  farm-loan  bonds  and  have 
custody  of  all  securities  underlying  such  bonds.  Land- 
bank  appraisers  are  also  appointed  by  the  board  and 
assigned  to  each  district  to  determine  the  value  of  the 
property  offered  as  security.  These  two  functions — 
the  approval  of  the  issue  of  bonds  and  the  final  ap- 
proval of  the  security  underlying  them — constitute  the 
most  important  functions  of  the  board.  It  is  through 
these  that  it  exercises  a  rigid  control  of  the  activities 
of  the  land  banks. 

The  organization  of  each  of  the  land  banks  was 
placed  in  charge  of  a  temporary  board  of  five  directors.2 
To  it  fell  the  detail  work  of  organizing  and  systematiz- 
ing incident  to  the  establishment  of  a  new  institution. 
This  work  was  made  more  difficult  by  the  early  de- 
mands made  for  the  banks'  service  and  the  immediate 
influx  of  applications  for  loans.3    It  is  the  duty  of  the 

1  First  Annual  Report  of  the  Federal  Farm  Loan  Board,  p.  io-ii. 

2  These  five  directors  were  appointed  by  the  Federal  Farm  Loan 
Board,  as  provided  by  law,  and  constituted  only  the  temporary  man- 
agement of  the  bank.  After  subscriptions  to  the  stock  of  any  land  bank 
by  national  farm -loan  associations  shall  have  reached  the  sum  of 
$100,000 — which  will  be  when  the  bank  has  made  loans  to  the  amount 
of  $2,000,000 — the  Act  provides  that  the  permanent  organization  is  to 
supersede  the  temporary  one.  The  permanent  organization  is  to 
consist  of  nine  directors,  six  of  whom,  known  as  "local  directors,"  shall 
be  chosen  by,  and  be  representative  of,  farm-loan  associations,  and  the 
remaining  three,  known  as  "district  directors,"  shall  be  appointed 
by  the  Farm  Loan  Board  to  "represent  the  public  interest."  The 
delay  in  putting  this  latter  feature  of  the  system  into  operation  arises 
out  of  the  problems  of  financing  the  system.  (See  Chapter  II  and 
footnote,  p.  30.) 

3  During  the  first  six  months  of  operation  approximately  $200,000,000 
in  applications  for  loans  were  received  by  the  land  banks. 


SYSTEM  IN   OPERATION 


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12  THE   FEDERAL  FARM-LOAN 

land  bank  to  receive  applications,  assign  them  to  the 
appraisers  for  inspection  and  valuation  of  the  proper- 
ties offered  as  security,  and  through  its  board  of  direct- 
ors approve  applications  for  loans  if  the  findings  so 
warrant.  When  a  stipulated  amount  of  loans  have 
been  approved  and  remittance  made  (in  the  aggregate 
not  less  than  $50,000),  bonds  are  issued  by  the  land 
banks  in  an  equal  amount  against  such  loans  as  secur- 
ity. This  function  constitutes  the  primary  business 
of  each  of  the  twelve  land  banks.  The  bookkeeping 
work  in  connection  with  the  making  of  loans  and  the 
issuance  of  bonds  and  the  filing  of  all  records  is,  of 
course,  done  by  the  land  banks.1 

The  authors  of  the  Farm  Loan  Act,  however,  real- 
ized that  the  land  banks  were  too  far  removed  from 
the  farmers  to  render  satisfactory  service.  It  was 
necessary  to  establish  a  smaller  unit,  somewhat  similar 
to  the  agencies  established  under  the  prevailing  prac- 
tice of  farm-mortgage  banking,  to  which  the  farmer 
would  have  ready  access  and  to  which  he  was  known. 
The  purpose  of  the  authors  of  the  Farm  Loan  Act  was 
to  get  away  from  the  agency  system  and  to  establish  in 
its  place  co-operative  associations  of  farmer-borrowers 
through  which  the  business  of  the  system  could  be 
transacted,  thereby  eliminating  the  added  expense  of 
the  old  method  of  making  farm-mortgage  loans.    The 

1  The  Farm  Loan  Act  (Section  16)  provides  for  the  organization  of 
joint-stock  land  banks  under  the  direct  supervision  of  the  Farm  Loan 
Board.  These  banks  are,  as  the  name  signifies,  joint  stock  companies, 
which  are  financed  by  private  capital  and  in  which  the  farmer-borrower 
has  no  financial  or  other  interests.  While  the  joint-stock  land  banks 
are  a  distinctive  part  of  the  Federal  farm-loan  system,  the  purpose  of 
this  book  is  to  present  the  system  in  its  co-operative  aspects  rather 
than  to  give  a  technical  analysis  of  all  of  the  provisions  of  the  Farm 
Loan  Act.     (See  Appendix  A.) 


SYSTEM   IN   OPERATION  13 

national  farm-loan  association  feature  of  the  Farm 
Loan  Act  is  an  adaptation  of  the  basic  principle  of  co- 
operative land-mortgage  banking  —  co-operation  of 
borrowers — as  developed  in  European  countries,  and 
therefore  cannot  be  said  to  be  an  experiment.  There 
was,  however,  some  doubt  whether  this  principle  could 
be  successfully  applied  to  American  conditions.  The 
authors  of  the  Farm  Loan  Act  guarded  against  such 
a  contingency  by  authorizing  the  appointment  by 
the  land  banks  of  special  local  agents,  in  the  event 
of  failure  to  form  farm-loan  associations  in  any  given 
territory.1 

In  making  the  national  farm-loan  associations  an 
essential  part  of  the  farm-loan  system  Congress  sought 
to  cultivate  a  spirit  of  co-operation  among  farmers.  It 
is  plain  that  a  number  of  farmers  associated  together 
for  a  definite  purpose  can  present  a  stronger  case  than 
one  farmer  standing  alone.  It  is  the  old  story  over 
again  of  the  gentleman  who,  knowing  he  was  about  to 
die,  called  his  sons  to  him.  He  had  a  bundle  of  sticks 
in  his  hand.  He  gave  one  to  each  of  them  and  said, 
"Break  it,"  and  each  stick  was  easily  broken.  And  he 
took  as  many  sticks  as  there  were  boys  and  tied  them 
together,  and  he  said,  "Break  that."  And  they  could 
not  break  it.    What  is  true  of  that  bundle  of  sticks  is 

1  The  Farm  Loan  Act  authorizes  the  appointment  of  an  agent  (one 
year  from  the  date  the  Act  became  effective,  which  was  fixed  by  the 
Farm  Loan  Board  as  one  year  from  August  7,  191 6,  the  date  on  which 
the  board  qualified  and  organized)  where  it  appears  that  a  national 
farm-loan  association  cannot  be  formed,  such  agent  to  be  a  "duly 
incorporated  bank,  trust  company,  mortgage  company,  or  savings 
institution,  chartered  in  the  state  in  which  it  has  its  principal  office." 
Owing  to  the  rapidity  with  which  the  farmers  have  organized  farm- 
loan  associations  in  every  section  of  the  United  States,  only  eleven 
agents  have  been  appointed  thus  far  (December  I,  1920),  all  of  them 
being  in  the  seventh  land-bank  district. 


i4  THE   FEDERAL  FARM-LOAN 

just  as  true  of  our  daily  efforts.  We  cannot  do  much 
in  this  world  as  individuals.  This  applies  with  equal 
force  to  our  farmers,  though  they  have  been  known 
to  be  essentially  individualistic  and  not  inclined  to- 
ward co-operation  in  any  form.  In  many  sections  of 
the  United  States,  however,  individualism  has  given 
way  to  organized  effort  on  the  part  of  the  farmers, 
particularly  in  the  marketing  of  their  products.  .  It 
was  the  hope  of  Congress,  in  providing  the  association 
feature,  that  the  farmers  would  realize  the  advantages 
of  co-operation  in  financing  and  would  tend  to  asso- 
ciate for  other  legitimate  ends. 

Congress  did  not  intend,  nor  does  the  Farm  Loan 
Act  intend,  to  encourage  the  extension  of  credit  with- 
out adequate  security.  The  object  Congress  sought 
was  to  determine  ways  and  means  whereby  farmers 
could  improve  the  form  and  quality  of  their  security. 
In  arriving  at  a  solution  of  this  problem  many  pro- 
posals were  made.  The  most  extreme  involved  the 
making  of  loans  direct  to  the  farmers  from  govern- 
ment funds.  The  principle  finally  adopted,  however, 
was  that  the  Federal  government  should  encourage  and 
assist  in  the  establishment  of  the  necessary  machinery 
and  supervise  its  operation;  that,  aside  from  such 
assistance,  as  will  be  hereafter  explained1,  the  govern- 
ment's cash  or  credit  should  not  be  utilized  for  the 
improvement  of  farm  credit.  The  machinery  for  the 
carrying  out  of  this  principle  is  found  in  the  national 
farm-loan  association,  through  which,  by  collective 
indorsement,  the  farmers  can  so  improve  their  security 
as  to  entitle  them  to  credit  on  a  sound  investment  basis. 

1  See  chaps,  ii  and  iii. 


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1 6  THE   FEDERAL   FARM-LOAN 

National  farm-loan  associations  arc  the  local  organi- 
zations upon  which  the  Federal  farm-loan  system  is 
based,  and  through  which  the  land  banks  carry  on  their 
loaning  operations.     National  farm-loan  associations 
are  corporations  chartered  by  the  Farm  Loan  Board, 
the  charter  delimiting  the  territory  within  which  each 
association  may  operate.     The  area  covered  by  an 
association  is  rarely  larger  than  that  of  a  county, 
though  associations  are  not  confined  to  county  lines. 
These  associations  do  not  lend  money  to  their  mem- 
bers.   Their  function  is  rather  to  enable  members  to 
meet  certain  requirements  and  thus  obtain  loans  from 
the  land   banks   on   better   terms   than   from  other 
sources.     In   addition   to   the  work  of  appraising  a 
member's  property  offered  as  security,  transmitting 
all  papers  and  documents  to  the  land  bank,  and  other 
work  incident  to  closing  a  loan,  the  local  association 
contributes  to  the  financial  standing  of  a  member's 
security  by  indorsing  the  borrower's  mortgage  note. 
The  local  association  thus  performs  services  for  the 
farmer  member  which  otherwise  would  be  performed 
by  other  agencies  at  added  expense. 

Ten  or  more  farmers,  applying  for  $20,000  or  more 
in  loans,  must  in  the  first  instance  unite  to  form  an 
association.  The  initiative  lies  with  the  farmers 
because  the  association  is  the  only  door  through  which 
they  can  enter  into  the  benefits  of  the  system.1  It 
was  freely  predicted,  in  and  out  of  Congress,  during 
the  consideration  of  the  Farm  Loan  Act,  that  the 
farmers  would  not  associate  for  the  purpose  of  organ- 
izing farm-loan  associations  because  they  were  reluc- 

1See  footnote  1,  p.  13. 


SYSTEM   IN  OPERATION  17 

tant  to  make  public  their  financial  needs.  This  should 
not  be  and  is  not  true  of  farmers  who  are  interested 
in  securing  credit  for  productive  purposes.  Inasmuch 
as  the  Farm  Loan  Act  limits  the  purposes  for  which 
loans  can  be  made  to  the  development  of  agriculture, 
specifically  enumerating  those  purposes,  the  farmers 
have  rapidly  come  to  realize  that  any  publicity  inci- 
dent to  securing  a  Federal  farm  loan  is  notice  to  the 
world  that  they  are  properly  developing  and  expanding 
their  farming  operations,  a  fact  of  which  they  can  be 
justly  proud.  The  rapidity  with  which  farm-loan 
associations  have  been  formed  throughout  the  entire 
United  States  is  evidence  of  the  fact  that  the  American 
farmers  will  co-operate  when  they  realize  that  it  is  to 
their  advantage  to  do  so.1 

The  affairs  of  each  association  are  in  charge  of  a 
board  of  five  or  more  directors  who  are  elected  annu- 
ally.2   This  board  elects  from  its  number  a  president, 

1  Three  thousand  nine  hundred  and  sixty-six  national  farm-loan  as- 
sociations had  been  organized  up  to  December  31,  1920.  In  fact,  there 
are  more  associations  formed  than  there  are  counties  in  the  United 
States.  There  is  very  little  agricultural  territory  not  already  included 
within  the  boundaries  of  one  or  more  existing  associations.  It  is, 
therefore,  unlikely  that  there  will  be  any  appreciable  increase  in  the 
number  of  associations  from  this  time  on,  inasmuch  as  those  already 
formed  will  tend  to  increase  in  size  and  strength,  thus  attracting  to 
themselves  any  prospective  borrowers  and  obviating  the  necessity  of 
forming  new  associations  within  their  territory.  Any  increase  in  num- 
ber, however,  will  be  offset  by  the  policy  of  the  Farm  Loan  Board  of 
encouraging  the  consolidation  of  the  weaker  associations. 

2  The  Farm  Loan  Act  provides  that  the  directors  of  national  farm- 
loan  associations  shall  be  elected  "in  the  manner  prescribed  for  the 
election  of  directors  of  national  banking  associations,"  and  that  they 
"shall  hold  office  for  the  same  period  as  directors  of  national  banking 
associations."  Section  5145,  Rev.  Stat.  (Section  232,  National 
Bank  Act,  as  amended,  etc.,  1919),  provides  that  directors  "shall  be 
elected  by  the  shareholders"  and  "shall  hold  office  for  one  year." 
The  instructions  of  the  Comptroller  of  the  Currency  relative  to  the 
organization  and  powers  of  national  banks,  1919  (Section  72),  states 
that   "in  all  elections  of  directors  .  .  .  each  shareholder  shall  be 


18  THE   FEDERAL  FARM-LOAN 

a  vice  president,  and  a  loan  committee  of  three  mem- 
bers. It  is  also  their  duty  to  choose  "in  such  manner 
as  they  prefer"  a  secretary-treasurer,  who  need  not 
be  a  member  of  the  association.  The  secretary- 
treasurer  is  the  active  executive  officer  of  the  associa- 
tion, and  upon  his  ability,  energy,  and  interest  in  the 
association  depend  largely  its  success  and  growth.  He 
is  custodian  of  the  association's  funds,  securities, 
records,  and  documents  and  carries  on  its  routine  busi- 
ness, such  as  the  disbursement  of  funds  forwarded  by 
the  land  bank,  collection  and  transmission  to  the  land 
bank  of  all  payments  made  on  loans  and  the  like.  He 
is  also  required  to  ascertain  and  report  to  the  land  bank 
any  delinquencies  upon  the  part  of  the  members  of  the 
association  in  the  matter  of  the  taxes  due  upon  lands 
mortgaged  to  the  bank.  To  insure  the  proper  per- 
formance of  these  duties,  the  secretary-treasurer  is 
required  to  give  a  "suitable"  surety  bond  as  pre- 
scribed and  approved  by  the  Farm  Loan  Board,  to 
which,  in  fact,  he  must  make  a  complete  report  quar- 
terly of  the  operations  of  the  association.  The  com- 
pensation of  the  secretary-treasurer,  the  expenses 
allowed  the  loan  committee,  and  the  like,  must  be 


entitled  to  one  vote  on  each  share  of  stock  held  by  him"  (see  Section 
8,  Farm  Loan  Act);  "the  date  of  the  annual  meeting  of  the  share- 
holders of  a  national  bank  is  fixed  in  the  articles  of  association,  and 
those  shareholders  who  attend  this  meeting  may  transact  the  business 
of  that  meeting — that  is,  elect  directors,  although  stockholders  repre- 
senting a  majority  in  interest  are  not  present.  .  .  .  Only  stockholders 
will  be  elected  directors  who  receive  a  majority  of  all  the  votes  cast 
at  the  election."  The  section  of  the  National  Bank  Act  above  quoted, 
and  the  Instructions  of  the  Comptroller  of  the  Currency,  govern  the 
election  of  directors  of  national  farm-loan  associations,  with  the  ex- 
ception contained  in  Section  8,  of  the  Farm  Loan  Act,  which  reads, 
"The  maximum  number  of  votes  which  may  be  cast  by  one  share- 
holder shall  be  twenty." 


SYSTEM   IN   OPERATION  19 

arranged  by  the  associations  themselves  and  adjusted 
according  to  their  local  conditions  and  needs.  By  a 
recent  amendment  to  the  Farm  Loan  Act,  a  limitation 
to  the  amount  that  can  be  levied  for  this  purpose  is 
fixed  at  one  per  cent  of  the  amount  of  the  loans 
applied  for.1 

It  is  evident  that  as  time  goes  on  the  operations  of 
the  farm-loan  associations  will  become  extensive.  In 
fact,  at  this  writing  (February,  192 1)  there  are  a 
number  of  associations  whose  membership  exceeds  two 
hundred,  and  to  whom  loans  have  been  made  in  excess 
of  a  half  million  dollars.  These  associations  own  as 
much  as  $25,000  of  stock  in  the  Federal  land  banks  of 
their  respective  districts,  upon  which  they  have  re- 
ceived $1,500  or  more  in  annual  dividends  on  a  6-per- 
cent basis,  which,  with  a  few  exceptions,  the  land 
banks  have  established.  The  operations  of  the  farm- 
loan  associations  compare  favorably  with  those  of  the 
larger  country  banks,  and  emphasize  the  necessity  of 
the  greatest  care  in  the  conduct  of  their  affairs.  From 
the  farm-loan  association,  up  through  the  superstruc- 
ture of  land  banks  to  the  Farm  Loan  Board,  the  system 
is  so  interwoven  as  to  form  a  complete  financial  fabric. 
Therein  lies  its  strength. 

1  Public  Document  No.  182,  Sixty-sixth  Congress. 


II 

METHOD   OF   FINANCING 

'"THE  making  of  loans  presupposes,  of  course,  funds 
*•  with  which  to  make  them.  First  consideration 
must  therefore  be  given  to  the  problems  of  financing 
the  Federal  farm-loan  system,  for  its  success  rests  upon 
its  ability  to  secure  funds  in  ample  and  continuous 
volume  from  a  reasonably  certain  source  of  supply. 

In  considering  what  constitutes  the  source  of  money 
supply,  we  should,  of  course,  direct  our  attention  to 
the  commercial  banks,  for  it  is  to  them  that  a  large 
part  of  the  money  of  the  nation  is  intrusted.  The 
cash  deposits  which  they  receive,  and  which  are  the 
basis  of  their  loans,  they  must  at  all  times  be  prepared 
to  restore  either  on  demand  or  within  a  comparatively 
short  time.  For  this  reason  they  cannot  properly 
invest  in  other  than  short-term  mortgages  or  thirty  to 
ninety  days'  personal  credits.  In  other  words,  deposits 
must  be  invested  so  that  a  steady  stream  of  payments 
is  flowing  into  the  banks,  giving  them  a  chance  to 
expand  or  contract  their  loans  in  response  to  the  rise 
and  fall  in  the  supply  of  deposits.  A  commercial 
bank  can  make  loans  for  a  period  sufficiently  long  to 
cover  the  ordinary  commercial  transaction,  but  from 
a  practical  banker's  point  of  view  ought  not  to  make 
loans  for  a  longer  period,  and  therefore  funds  from 


SYSTEM   IN   OPERATION  21 

a  commercial  bank  cannot  be  invested  in  long-term 
mortgages,  regardless  of  how  beneficial  they  may  be  to 
agriculture. 

Through  the  Federal  Reserve  Act  an  attempt  was 
made  to  extend  greater  accommodations  to  American 
farmers.  National  banks  were  encouraged  to  make 
personal  loans  to  farmers  for  periods  of  six  months,  and 
were,  to  a  limited  extent,  permitted  to  loan  on  im- 
proved farm  lands  for  periods  not  exceeding  five  years.1 
While  this  was  a  step  in  the  right  direction,  it  did  not 
increase  appreciably  the  funds  available  for  farm  loans, 
because  the  five-year  maximum  period  was  not  suffi- 
cient to  care  for  the  farmer's  long-term  requirements, 
and  because  the  commercial  banker  was  inclined  to 
keep  well  within  the  loaning  limit  prescribed  by  law. 

The  commercial  bank  has  a  legitimate  claim  to  the 
deposits  of  the  nation  for  the  exclusive  purpose  of 
making  loans  to  the  business  man  to  carry  through 
a  commercial  transaction,  or  to  the  farmer  for  a  short 
period  of  time.  What  funds,  then,  can  be  said  to  be 
available  for  long-term  investment,  at  low  rates,  and 
in  ample  supply?  It  is  evident  that  an  investment 
of  this  character,  if  it  possesses  safety  and  ready 
convertibility,  need  not  carry  a  high  rate  of  interest. 
Funds  available  for  such  an  investment  can  be  said 
to  include  the  savings  of  the  school-teacher,  clerk, 
minister,  and  wage  earner;  the  proceeds  of  life  in- 
surance in  the  hands  of  widows  and  other  beneficiaries; 
funds  belonging  to  estates,  minors,  and  wards;  funds 
of  insurance  companies,  benevolent  orders,  and  socie- 
ties of  various  kinds;    and  endowments  of  colleges, 

1  The  Federal  Reserve  Act,  Sections  13  and  14. 


22  THE   FEDERAL  FARM-LOAN 

hospitals,  museums,  and  other  institutions.  These  are 
the  funds  that  should  be  available  to  the  farmers  on 
long-term  mortgages.  Their  sum  total  is  enormous. 
But  it  is  important  that  the  farmer's  security  be  made 
as  attractive  an  investment  as  possible  to  individuals 
or  institutions  controlling  these  funds,  and  that  the 
funds  be  placed  in  the  hands  of  the  farmer  on  the 
most  favorable  terms.  To  serve  this  double  purpose 
the  Federal  farm-loan  system  was  designed. 

It  was  necessary  before  any  land  bank  could  begin 
business  that  a  relatively  small  capital  stock  be  sub- 
scribed. The  amount  fixed  was  $750,000,  divided 
into  shares  of  $5  each.  While  the  Farm  Loan  Act 
provided  that  any  individual,  firm,  corporation,  or 
the  government  of  any  state,  or  the  United  States, 
was  eligible  to  subscribe  for  stock  in  any  land  bank, 
as  a  matter  of  fact  only  a  small  portion  of  the  stock 
was  taken  by  the  public.  It  remained  for  the  Secre- 
tary of  the  Treasury,  as  contemplated  by  the  Act,  to 
subscribe  on  behalf  of  the  United  States  nearly  all 
of  the  capital  stock  of  all  of  the  land  banks.1  The 
stock  held  by  the  government  receives  no  dividends, 
but  carries  voting  power. 

The  proposal  of  government  aid  in  establishing  a 
rural  credit  system  was  a  source  of  protracted  dis- 
cussion during  the  consideration  of  the  subject  of 
rural  credits  in  Congress.    Staunch  exponents  of  indi- 

1  As  required  by  law,  books  were  opened  by  the  Farm  Loan  Board 
to  receive  public  subscriptions  to  the  capital  stock  of  the  respective 
land  banks.  Only  $107,870  in  stock  was  subscribed  by  the  public 
in  all  the  land  banks,  and  it  therefore  remained  for  the  Secretary  of  the 
Treasury  to  subscribe  the  balance— $8,892,130 — on  behalf  of  the 
United  States.— First  Annual  Report  of  the  Federal  Farm  Loan 
Board,  p.  13. 


SYSTEM   IN   OPERATION  23 

vidualism,  as  proclaimed  by  Adam  Smith,  were  op- 
posed to  government  aid  in  any  form.  There  were 
those  (shall  we  call  them  socialists?)  who  believed 
that  the  government  should  do  that  which,  as  a  mat- 
ter of  fact,  the  individual  could  do  much  better, 
advocating  a  system  saturated  with  government  aid. 
Some  believed  that  the  days  of  individualism  had 
gone  forever  and  were  equally  opposed  to  the  other 
extreme.  For  convenience  they  may  be  called  mod- 
erate, believing  that  the  government  must  step  in  to 
do  certain  things  that  the  public  welfare  seemed  to 
demand,  leaving  as  much  of  the  general  business  of 
the  country  as  possible  to  individual  effort.  The 
rural-credit  bill  as  finally  enacted  into  law  conformed 
to  the  views  of  the  moderates,  affording  another  illus- 
tration of  the  compromising  character  of  American 
legislation. 

The  discussions  of  government  aid  in  official  docu- 
ments and  periodicals  of  the  time  contain  many  in- 
teresting arguments.  This  aid  to  agriculture  was  ad- 
vocated because  of  existing  conditions  and  because 
of  grants  made  to  other  industries,  particularly  the 
shipping  and  railroad  industries.  It  is  clear,  however, 
that  the  use  of  funds  subscribed  by  the  government 
to  capital  stock  in  the  land  banks  can  be  justified 
only  upon  the  ground  of  performing  a  public  service, 
such  as  the  improvement  or  development  of  Ameri- 
can agriculture.  It  could  not  be  countenanced  if  such 
funds  were  to  be  used  to  encourage  speculation  or 
diverted  to  other  than  a  public  purpose.  The  Federal 
farm-loan  system  was  to  be  launched  in  the  interests 
of  agriculture — to  develop  and  promote  the  basic  in- 


24  THE   FEDERAL  FARM-LOAN 

dustry  of  the  United  States— which,  if  its  establish- 
ment depended  upon  subscriptions  from  the  public, 
appeared  impossible.1  Congress,  having  decided  that 
the  Farm  Loan  Act  was  a  measure  in  the  interest  not 
only  of  agriculture  but  of  the  nation  at  large,  insured 
its  immediate  establishment  by  placing  at  the  dis- 
posal of  the  land  banks  government  funds  in  such 
amount  as  was  necessary  to  complete  their  capital 
stock  subscriptions.  These  funds,  however,  do  not 
constitute  a  permanent  investment  on  the  part  of  the 
government.  The  Farm  Loan  Act  provides  that  when 
the  amount  of  capital  stock  subscribed  by  national 
farm-loan  associations  in  any  land  bank  aggregates 
$750,000,   the   land  bank  shall    apply  semiannually 

25  per  cent  of  further  stock  subscriptions  to  the  re- 
tirement of  the  stock  originally  subscribed.  This  is 
now  being  done.2  The  contribution,  then,  of  the  gov- 
ernment to  the  establishment  of  the  land  banks  was 
the  use,  for  a  limited  time,  of  capital,  the  right  to 
dividends  on  which  is  expressly  waived  in  the  Farm 
Loan  Act. 

If  the  land  banks  were  limited  merely  to  turning 
over  their  capital,  they  would  function  in  a  compara- 
tively small  way.  The  capital  of  each  land  bank 
would  be  exhausted  within  a  few  weeks  after  it  com- 
menced to  close  loans.  It  was  therefore  necessary  to 
make  provision  for  the  raising  of  funds  with  which  to 
make  further  loans.  To  accomplish  this  purpose 
Congress  provided  that  the  land  banks  should  issue 

1  See  footnote  1,  p.  22. 

2  Of  the  amount  ($8,892,130)  of  stock  subscribed  by  the  government, 
$2,059,450  has  been  retired.— Consolidated  statement,  issued  by  the 
Farm  Loan  Board  as  of  December  31,  1920. 


SYSTEM   IN   OPERATION  25 

bonds  based  on  the  collective  security  of  many  in- 
dividual mortgages  on  real  estate.  European  experi- 
ence had  shown  that  land-mortgage  bonds,  issued 
under  strict  government  supervision,  form  an  ideal 
investment  because  of  their  great  stability  of  value, 
uniformity,  and  convertibility  into  cash  upon  mod- 
erate notice.  A  security  of  this  nature  could  be  mar- 
keted at  low  rates  and  in  considerable  volume. 

The  Farm  Loan  Act  authorizes  the  issuance  of 
bonds  on  the  theory  that  if  the  bank  exhausted  a  por- 
tion of  its  capital  in  making  loans,  it  could  pledge 
these  loans  as  security  for  bond  issues,  sell  the  bonds, 
and  receive  the  proceeds  before  the  capital  of  the 
bank  would  be  exhausted.  This  theory,  however, 
overlooked  the  fact  that  the  capital  of  some  of  the 
land  banks  was  not  sufficient  for  their  business;  that 
a  large  part  of  this  capital  was  necessarily  tied  up  in 
a  float — that  is,  payments  pledged  to  farmers  or  in 
transit,  those  loans  being  not  then  available  as  secur- 
ity for  bond  issues;  and  that  the  mechanical  proced- 
ure of  converting  loans  into  bond  schedules  and  bonds 
into  cash  involved  a  necessary  but  prohibitory  delay. 
While  the  Farm  Loan  Act  authorizes  the  issuance  of 
bonds  in  series  as  small  as  $50,000,  as  a  matter  of 
actual  practice  bonds  have  been  issued  only  in  series 
of  $250,000,  and  sold  in  large  blocks  for  delivery  at 
some  future  date,  in  order  to  insure  the  uninterrupted 
operation  of  the  land  banks. 

Some  limitation,  of  course,  had  to  be  placed  upon 
the  extent  to  which  the  land  banks  could  issue  bonds. 
This  the  Farm  Loan  Act  set  at  twenty  times  the  land 
bank's  capital  and  surplus,  which  means  that  in  ad- 


26  THE   FEDERAL   FARM-LOAN 

dition  to  the  mortgages  placed  as  security  for  each 
bond  issued,  the  land  bank  holds  in  the  shape  of 
capital  and  surplus  one  dollar  in  cash  or  in  quick 
assets  for  every  twenty  dollars  of  Federal  farm-loan 
bonds  outstanding.  The  Farm  Loan  Act  provides 
for  increase  in  capital  stock,  in  that  each  borrower  is 
required  to  subscribe  an  amount  equal  to  5  per  cent 
of  his  loan  in  the  capital  stock  of  the  national  farm~ 
loan  association,1  and  the  association  in  turn  sub- 
scribes an  equal  amount  of  stock  of  the  land  bank. 
Owing  to  the  fact  that  the  Act  authorizes  land  banks 
to  make  loans  up  to  twenty  times  their  capital  and 
surplus,  it  is  evident  that  the  amount  of  loans  that  can 
be  made  through  the  system  is  unlimited,  because  the 
ratio  between  the  loans  made  and  the  capital  stock 
of  the  land  banks  automatically  adjusts  itself  to 
twenty  to  one,  as  the  volume  of  business  increases.2 

The  desirability  of  Federal  farm-loan  bonds  from  a 
long-term-investment   standpoint,  does   not,  as  has 

1  This  5-per-ccnt  stock  subscription  of  the  borrower  is  paid  back 
to  him  when  his  loan  is  paid  and  is  not  in  the  nature  of  an  extra  bonus 
or  charge.  It  is  an  investment  upon  which  the  borrower  receives  such 
dividends  as  may  be  declared. 

2  Every  land  bank  carries  to  reserve  account  25  per  cent  of  its  earn- 
ings, as  required  by  law.  This  must  be  done  until  said  reserve  account 
shows  a  credit  balance  equal  to  20  per  cent  of  the  outstanding  capital 
stock  of  the  land  bank.  When  the  reserve  equals  20  per  cent  of  the 
outstanding  capital  stock,  but  5  per  cent  of  the  net  earnings  must  be 
carried  to  reserve.  Dividends  can  be  paid  to  national  farm-loan  asso- 
ciations only  after  the  above  amount  is  set  aside  to  reserve. 

A  national  farm-loan  association  must  carry  to  reserve  10  per  cent 
of  its  net  earnings  until  a  credit  balance  equal  to  20  per  cent  of  its 
outstanding  capital  stock  is  shown.  When  the  reserve  reaches  that 
amount  it  is  necessary  to  carry  only  2  per  cent  of  its  net  earnings  to 
this  account.  The  above  amount  must  be  set  aside  to  reserve  before 
any  dividends  are  paid  by  the  association  to  its  members. 

The  consolidated  statement  issued  by  the  Federal  Farm  Loan 
Board  as  of  December  31,  1920,  discloses  that  the  twelve  Federal  land 
banks  have  carried  to  reserve  account  $958,473. 


SYSTEM   IN  OPERATION  27 

been  stated,  depend  upon  the  rate  of  income,  but 
rather  upon  their  stability,  safety,  and  convertibility 
at  the  will  of  the  holder.  An  examination  of  the 
nature  of  the  security  underlying  a  Federal  farm-loan 
bond  reveals  both  stability  and  safety.1  Land-mort- 
gage bonds  have  long  been  recognized  as  a  first-class 
security  in  European  countries,  and  it  is  expected  that, 
with  proper  encouragement,  they  will  be  so  recognized 
in  America.  Congress  realized  the  importance  of  re- 
moving any  barriers  that  stood  in  the  way  of  making 
available  the  accumulation  of  funds  in  national  trust 
companies  for  investment  in  Federal  farm-loan  bonds, 
in  that  they  are  made  lawful  investments  for  all 
fiduciary  and  trust  funds.2  Those  states  whose  laws 
did  not  permit  of  such  investment  by  savings  banks, 
trust  companies,  and  insurance  companies,  have  like- 
wise, with  a  few  exceptions,  made  such  provisions  as 
were  necessary  to  make  these  funds  available. 

The  full  success  of  the  farm-loan  system  rests  upon 
its  ability  to  market  its  bonds.  It  was  not  possible 
for  the  land  banks  to  operate  on  their  capital  in  a  satis- 
factory manner,  if  bonds  were  to  be  issued  and  sold 
in  small  amounts.  The  continuous  operation  of  the 
system  could  be  assured  only  by  the  sale  of  bonds  by 
the  tens  of  millions  and  in  anticipation  of  the  loaning 
needs  of  the  land  banks  for  a  future  period.3   While  the 

1  See  chap.  iii. 

2  The  Federal  Farm  Loan  Act,  Section  27. 

3  Though  Federal  Farm  Loan  bonds  were  sold  in  anticipation  of  the 
future  loaning  needs  of  the  land  banks  for  a  given  period,  it  was  neces- 
sary to  deliver  the  bonds  sold  as  called  for  by  the  purchasers.  The 
land  banks,  of  course,  could  not  absorb  the  proceeds  of  a  bond  sale  imme- 
diately— that  is,  invest  the  proceeds  in  first  mortgages  and  issue 
bonds  against  them,  for  they  could  only  disburse  funds  as  their  opera- 
tions required.     The  Farm  Loan  Board,  therefore,  on  behalf  of  the 

3 


28  THE   FEDERAL  FARM-LOAN 

security  underlying  farm-loan  bonds  could  not  be 
questioned,  the  Farm  Loan  Board  realized  that  as  yet 
they  were  unknown  to  the  American  investor.  For 
this  reason,  principally,  the  board  secured  the  co- 
operation of  certain  bond  houses,  "with  large  'clien- 
teles' of  investors  and  an  established  reputation  for 
dealing  in  conservative  investments,"  l  who  formed  a 
syndicate  for  the  purpose  of  assisting  the  farm-loan 
board  in  introducing  the  Federal  farm-loan  bonds  on 
the  American  bond  market.  This  arrangement  was  at 
the  time  eminently  satisfactory. 

The  amount  of  interest  the  land  banks  are  obliged 
to  pay  on  their  bonds  determines  the  interest  rate  to 
be  charged  to  the  farmers  who  borrow.  Since  the 
primary  purpose  of  the  Farm  Loan  Act  was  to  pro- 
vide capital  for  agricultural  development  at  the  lowest 
possible  rate,  it  was  of  course  the  duty  of  the  Farm 
Loan  Board,  under  the  above  arrangement,  to  offer 
the  bonds  at  the  lowest  rate  consistent  with  their 
ability  to  command  a  market.  The  board  concluded 
that  it  was  possible  to  market  a  4^-per-cent  bond  at 
such  a  premium  as  would  net  the  purchaser  4%,  per 
cent,  the  rate  to  the  borrower  being  fixed  at  5  per 
cent.  Thus  a  spread  or  margin  of  a  little  over  Y%  of  one 
per  cent  was  realized  by  the  banks  to  cover  expense 
of  operation.2    The  ready  sale  of  these  bonds  at  this 

land  banks,  purchased  United  States  government  bonds  or  certificates 
of  indebtedness,  which  were  temporarily  used  as  security  for  such 
bonds  as  were  called  for,  substituting  first  mortgages  for  these  bonds 
as  loans  were  made.  This  expedient,  which  is  authorized  by  the 
Farm  Loan  Act,  not  only  enabled  the  land  banks  to  supply  farm- 
loan  bonds  as  called  for,  but  made  available  to  the  land  banks  at  call 
large  amounts  of  funds  for  loaning  purposes. 

1  First  Annual  Report  of  the  Federal  Farm  Loan  Board,  p.  17. 

2  This  spread  or  margin  did  not,  of  course,  meet  the  expense  of  the 


SYSTEM   IN   OPERATION  29 

rate  bears  ample  testimony  to  the  desirability  of 
Federal  farm-loan  bonds  as  an  investment  under  the 
conditions  then  prevailing. 

The  success  of  the  first  bond  sale,  however,  did  not 
foreshadow  equal  success  in  the  future.  The  United 
States  was  well  into  the  European  war  and  the  prob- 
lems of  government  financing  were  assuming  large 
proportions.  While  there  had  been  no  difficulty  in 
marketing  nearly  $30,000,000  in  farm-loan  bonds  be- 
tween the  first1  and  second2  Liberty-loan  issues,  at  a 
substantial  premium,  during  the  succeeding  six  months 
the  government  had  absorbed  nearly  $6,000,000,000 
in  capital.  Anticipating  this  situation  at  the  time 
the  United  States  entered  the  European  war,  the  Farm 
Loan  Board  had  prepared  an  amendment  authorizing 
the  Secretary  of  the  Treasury  to  buy  farm-loan  bonds 
from  time  to  time  at  par  during  each  of  the  following 
two  years  to  an  amount  not  exceeding  $100,000,000 
in  each  year,  to  be  subject  to  resale  and  redemption 
at  the  same  price.  It  was  thought  that  some  expedient 
of  the  kind  might  be  necessary,  inasmuch  as  the  offer- 
land  banks  during  the  first  year.  As  a  consequence,  there  was  an  im- 
pairment of  the  banks'  capital.  The  total  impairment  of  capital  of 
the  twelve  banks  on  April  30,  191 8,  which  was  practically  at  the  close 
of  the  first  year,  was  $411,954.  In  the  succeeding  quarter  it  was  re- 
duced by  $26,834  to  $385,120,  and  in  the  four  months  ending  Novem- 
ber 30  it  was  reduced  by  $246,594  to  $138,526. — Second  Annual 
Report  of  the  Federal  Farm  Loan  Board,  p.  16.    See  footnote,  p.  32. 

The  above  does  not  take  into  consideration  the  salaries  and  expenses 
of  the  Farm  Loan  Board,  which  are  paid  by  congressional  appropria- 
tion as  provided  by  Section  3  of  the  Farm  Loan  Act.  The  Farm 
Loan  Board,  however,  in  its  Third  Annual  Report  (p.  18),  recom- 
mended an  amendment  to  the  Farm  Loan  Act  authorizing  the  pay- 
ment of  salaries  and  expenses  of  the  board  by  assessment  upon  the 
land  banks  instead  of  by  direct  appropriation  of  public  funds.  This 
amendment  would  place  the  system  entirely  on  a  self-supporting  basis. 

1  May,  191 7. 

2  October,  191 7. 


3o  THE   FEDERAL  FARM-LOAN 

ing  of  government  bonds  might  temporarily  destroy 
the  market  for  Federal  farm-loan  bonds.  This  amend- 
ment was,  however,  not  presented  to  Congress  until 
December,  191 7.  The  syndicate  of  bond  houses  had 
not,  as  had  been  anticipated,  renewed  their  contract 
on  December  1,  191 7,  owing,  so  they  said,  to  the  dis- 
turbed financial  conditions.  This  situation  was  very 
embarrassing  to  the  land  banks,  inasmuch  as  they 
had,  on  that  date,  commitments  actually  exceeding 
$100,000,000  which  they  were  legally  bound  to  meet 
(loans  which  the  land  banks  had  agreed  to  close). 
Had  it  been  possible  for  the  Farm  Loan  Board  and 
the  land  banks  to  have  done  so,  it  would  have  been 
the  part  of  wisdom  to  have  established  a  bond-selling 
agency  of  their  own,  but  the  system  was  in  no  way 
organized  to  establish  such  an  agency  and  conduct  a 
bond  sale  of  such  magnitude  without  several  months' 
preparation.  In  view  of  this  situation,  Congress  passed 
the  amendment  in  the  form  prepared  by  the  Farm 
Loan  Board,  and  it  was  approved  January  18,  1918.1 

1  This  amendment  authorized  the  Secretary  of  the  Treasury  to 
purchase  from  any  Federal  land  bank,  at  par  and  accrued  interest, 
farm-loan  bonds  issued  by  that  bank,  such  purchase  not  to  exceed 
in  the  aggregate  $100,000,000  in  each  of  the  fiscal  years  ending  June 
30,  191 8,  and  June  30,  1919.  It  was  further  provided  that  any  bonds 
so  purchased  might  at  any  time  be  repurchased  by  the  issuing  bank 
at  par  and  accrued  interest  for  the  purpose  of  redemption  or  resale,  and 
that  any  bonds  held  by  the  Treasury  one  year  after  the  termination 
of  the  pending  war  should  be  redeemed  or  repurchased  upon  thirty 
days'  notice  from  the  Secretary  of  the  Treasury.  Under  authority  of 
this  amendment,  there  were  sold  to  the  Treasury  farm-loan  bonds  to 
the  amount  of  $149,775,000,  of  which  about  $135,000,000  were  held  by 
it  on  September  30,  19 19. 

This  amendment  also  provides  that  "the  temporary  organization  of 
any  Federal  land  bank,  as  provided  for  in  Section  4  of  said  Federal 
Farm  Loan  Act,  shall  be  continued  so  long  as  any  farm-loan  bonds 
purchased  from  it  under  the  provisions  of  this  amendment  shall  be 
held  by  the  Treasury.  ..." 


SYSTEM   IN  OPERATION  31 

The  bonds  issued  from  the  time  of  organization  up 
to  April  30,  191 8,  including  those  purchased  by  the 
Treasury  under  the  above  amendment,  bore  interest 
at  the  rate  of  4^  per  cent.  The  Farm  Loan  Board, 
with  a  view  to  relieving  the  Treasury  of  the  United 
States  of  the  necessity  of  buying  farm-loan  bonds, 
and  re-establishing  them  as  a  security  to  command 
the  confidence  of  the  investing  public,  decided  on  a 
bond  sale  as  soon  as  possible  after  the  1st  of  May, 
1 91 8.  The  subscription  period  of  the  third  Liberty 
loan  extended  to  May  4,  and  it  was  known  that 
another  offering  was  to  be  made  in  the  early  fall. 
This,  then,  gave  the  maximum  period  of  approximately 
four  months  within  which  to  conduct  a  sale.  In  view 
of  the  existing  conditions,  the  board  was  of  the  opinion 
that  a  4^-per-cent  bond  was  unsaleable  and  therefore 
fixed  the  rate  at  5  per  cent,  and  the  rate  to  the  farmers 
who  borrow  was  advanced  to  ^]A  per  cent.  The 
selling  commenced  on  May  20  and  closed  on  June  5, 
1 918.  The  sales  within  these  sixteen  days  amounted 
to  $56,000,000.  This  was  enough  to  take  care  of  the 
loaning  requirements  of  the  banks  up  to  October  1, 
1918. 

The  readiness  with  which  the  bonds  were  absorbed 
emphasized  once  more  their  desirability  as  an  invest- 
ment. No  further  offerings  were  made  until  June,  in 
the  following  year.  After  the  funds  realized  from  the 
second  bond  sale  had  been  exhausted,  in  deference  to 
the  wishes  of  the  Treasury  authorities,  bonds  were 
sold  to  the  Treasury  until  after  the  conclusion  of  the 
Victory  Loan  campaign.  Farm-loan  bonds  during 
the  fall  of  1 918  and  the  spring  of  191 9  were  quoted 


32  THE   FEDERAL   FARM-LOAN 

at  a  substantial  premium.  This  was  true  not  only 
of  the  5's  of  the  second  issue,  but  of  the  4^2 's  of  the 
first.  In  view  of  these  conditions,  the  rate  of  interest 
on  the  bonds  offered  during  June,  1919,  was  fixed  at 
\]/2  per  cent.  At  this  time  all  of  the  land  banks  had 
not  overcome  the  impairment  of  their  capital.  The 
rate,  therefore,  to  the  farmer-borrowers  was  not  re- 
duced, but  remained  at  5  per  cent.1  Within  ten  days 
the  entire  issue — $54,000,000— was  sold,  and  this,  it 
was  estimated,  would  care  for  the  needs  of  the  banks 
up  to  December,  191 9.  The  services  of  the  syndicate 
of  bond  houses  were  enlisted  in  this  sale  also  under 
arrangements  similar  to  those  agreed  on  during  the 
first  and  second  bond  sales. 

This  method  of  selling  bonds,  however,  was  not 
wholly  satisfactory.  It  is  evident  that  if  the  land 
banks  had  been  free  to  choose  their  own  times  and 
methods,  bond  sales  could  have  been  made  under 
more  advantageous  conditions,  but  it  must  be  re- 
membered that  during  this  entire  period  the  United 

1  On  the  present  volume  of  loans  the  banks  are  realizing  from  borrow- 
ers a  rate  about  nine  tenths  of  i  per  cent  higher  than  the  rate  which  they 
are  paying  on  their  bonds.  On  such  loans  as  represent  their  capital, 
against  which  no  bonds  have  been  issued,  they  are  realizing  5>?  per 
cent.  The  gross  annual  profit  on  interest  account,  therefore,  ap- 
proximates at  this  time  $3,500,000.  At  the  beginning  of  the  year  it 
was  materially  less,  but  it  grows,  and  it  must  continue  to  grow,  with 
each  succeeding  month  that  shows  an  increase  in  the  volume  of  loans. 
From  this  profit  must  be  deducted  all  expenses  in  excess  of  the  aggre- 
gate of  fees  charged  to  borrowers. 

The  consolidated  statement  of  condition  of  the  twelve  Federal  land 
banks  as  of  November  30,  191 8,  showed  an  excess  of  expenses  and 
interest  charges  from  organization  to  that  date  of  $138,526.  (See 
footnote  2,  p.  28.)  The  similar  statement  of  November  30,  1919, 
shows  an  excess  of  earnings  over  expenses  and  interest  charges  of 
$1,461,440.88.  It  is  apparent,  therefore,  that  the  net  earnings  of  the 
twelve  banks  were  $1,599,966.88. — Third  Annual  Report  of  the  Fed- 
eral Farm  Loan  Board,  p.  10. 


SYSTEM    IN   OPERATION  33 

States  was  involved  in  war,  and  it  was  necessary  to 
subordinate  every  interest  to  the  exigencies  of  the 
Federal  Treasury.  Therefore,  it  appeared  to  be  the 
part  of  wisdom  to  centralize  the  efforts  of  the  land 
banks  in  conducting  bond  sales,  and  enlist  the  co- 
operation of  certain  large  and  well-known  bond  houses 
to  insure  their  success.  The  Farm  Loan  Board,  how- 
ever, did  not  look  with  favor  on  such  an  arrangement 
as  a  permanent  one.  "It  is  our  belief,"  the  board's 
first  annual  report  states,  "that,  in  harmony  with  the 
other  co-operative  features  of  the  Act,  the  sale  of 
bonds  directly  by  the  banks  to  the  investors,  should 
be  stimulated  in  every  way  possible."  The  board 
stated  further  that  while  it  was  not  as  yet  prepared 
to  make  recommendation,  it  felt  that  the  "process  of 
issuing  bonds  would  be  very  much  expedited  and  sim- 
plified if  all  the  loans  of  all  the  banks  were  assembled 
and  bonds  issued  against  them  by  a  single  bank,  so 
that  all  farm-loan  bonds  might  be  absolutely  identical 
in  every  particular  except  denomination." 

After  the  sale  of  June,  191 9,  it  was  evident  that 
farm-loan  bonds  were  readily  marketable  under  or- 
dinary conditions.  Their  rating  on  the  bond  market 
was  exceptionally  good,  reflecting  the  confidence  and 
approval  of  the  American  investor.  These  conditions 
were  favorable  to  the  working  out  of  some  arrange- 
ment by  the  land  banks  and  the  farm-loan  board  to 
dispose  of  bonds  without  assistance  from  the  outside. 

While  plans  along  these  lines  were  being  developed, 
the  long-threatened  suit  to  contest  the  constitution- 
ality of  the  Farm  Loan  Act  was  instituted.  This  suit 
was  begun  in  August,  191 9,  in  the  form  of  an  equity 


34  THE   FEDERAL   FARM-LOAN 

proceeding  in  the  United  States  District  Court  for  the 
western  district  of  Missouri.  The  case  was  heard 
October  30  and  31,  the  complaint  being  by  order 
of  the  court  dismissed,  and  the  validity  of  the  Farm 
Loan  Act  sustained.  An  appeal  was  immediately 
taken  to  the  Supreme  Court  of  the  United  States, 
where  the  case  was  heard  on  January  6,  1920.  On 
April  28,  the  Supreme  Court  ordered  a  reargument 
of  the  case,  which  was  heard  on  October  14  and  15, 
1920.  The  court  rendered  its  decision  on  February 
28,  1 92 1,  upholding  the  constitutionality  of  the  Fed- 
eral Farm  Loan  Act  in  its  entirety.  During  the  liti- 
gation it  was,  of  course,  not  possible  to  conduct  a 
successful  bond  sale.  The  validity  of  the  Act  creat- 
ing farm  -  loan  bonds  was  being  contested  in  court 
and,  regardless  of  the  confidence  that  might  be  ex- 
pressed as  to  the  outcome  of  the  pending  suit,  the 
average  investor,  as  a  matter  of  ordinary  prudence, 
would  await  the  decision  of  the  court.  For  this  rea- 
son no  bonds  were  offered  while  the  litigation  was 
pending. 

While  the  funds  realized  from  the  bond  sale  of  June, 

1 91 9,  were  held  to  be  sufficient  to  care  for  the  needs 
of  the  banks  up  to  December,  191 9,  as  a  matter  of 
fact  the  banks,  with  one  or  two  exceptions,  were  sup- 
plied with  loanable  funds  until  about  February   1, 

1920.  The  banks,  in  the  course  of  operation,  had 
accumulated  a  large  volume  of  approved  applications, 
though  on  February  4  they  had  ceased  to  receive  appli- 
cations, except  subject  to  closing  after  the  Supreme 
Court  had  rendered  its  decision.  Anticipating  an 
early  decision,  the  banks  made  use  of  their  credit 


SYSTEM   IN   OPERATION  35 

through  commercial  banks  to  take  care  of  the  most 
pressing  applications.  The  delay  in  rendering  a  de- 
cision, occasioned  by  the  order  for  reargument,  created 
an  emergency  whereby  it  became  necessary  for  Con- 
gress to  extend  the  provisions  of  the  Act  of  January 
18,  1918,  to  care  for  loans  approved  before  March  1, 
1920. l 

An  impartial  examination  discloses  the  fact  that 
the  stabilizing  influence  effected  by  temporary  govern- 
ment support  through  the  purchase  of  farm-loan  bonds 
was  essential  at  the  time  to  the  continuous  operation 
of  the  land  banks.2  But  conditions  have  changed. 
Now  that  the  validity  of  the  Federal  Farm  Loan  Act 
can  no  longer  be  assailed,  the  financing  of  the  farm- 
loan  system  becomes  a  problem  of  marketing,  at  the 
most  favorable  terms,  an  unexcelled  security.  It  is 
entirely  possible  that  at  times  general  financial  con- 
ditions may  affect  the  bond  market  adversely  and 
necessitate  the  sale  of  Federal  farm-loan  bonds  on 
terms  less  favorable  than  under  ordinary  circum- 
stances. But  the  establishment  of  bond-selling  ma- 
chinery would  tend  to  create  an  even  demand  and  to 
a  large  extent  nullify  the  effect  of  adverse  economic 
conditions  in  the  United  States.      This  machinery 

1  The  total  amount  of  farm-loan  bonds  purchased  by  the  Secretary 
of  the  Treasury  was  by  this  extension  increased  to  about  $175,000,000. 

2  The  land  banks  have  received  deposits  from  the  Secretary  of  the 
Treasury,  as  contemplated  in  Section  32  of  the  Farm  Loan  Act. 
While  this  provision  of  the  Farm  Loan  Act  has  been  criticized  as  being 
a  special  privilege,  as  a  matter  of  fact  similar  deposits  are  made  in 
national  banks.  In  either  case  the  Secretary  of  the  Treasury  is  author- 
ized to  use  his  discretion  in  making  such  deposits  and  satisfactory 
security  must  be  given.  The  Farm  Loan  Act  provides  that  these 
deposits  must  not  exceed  $6,000,000  in  the  aggregate  at  any  one  time 
and  that  the  interest  rate  charged  thereon  by  the  Treasury  must  not 
exceed  the  interest  charged  for  other  government  deposits. 


36  THE    FEDERAL   FARM-LOAN 

might  well  take  the  form  of  a  subsidiary  fiscal  agency, 
within  the  farm-loan  system,  organized  to  centralize 
the  efforts  of  the  land  banks  in  disposing  of  Federal 
farm -loan  bonds,  not  only  within  our  own  country,  but 
in  the  markets  of  the  world. 


Ill 


FEDERAL  FARM-LOAN  BONDS 

A  FEDERAL  farm-loan  bond  is  a  debenture.  A 
**  mortgage  bond  and  debenture  are,  of  course, 
essentially  the  same,  but  there  is  an  important  distinc- 
tion that  should  be  borne  in  mind.  A  mortgage  bond 
is  secured  by  certain  specified  and  designated  mort- 
gages, while  a  debenture  is  secured  not  by  specific 
mortgages,  but  by  the  general  assets  of  the  institution 
issuing  the  debenture.  Federal  farm-loan  bonds  come 
within  the  definition  of  a  debenture,  inasmuch  as  the 
Farm  Loan  Act  specifically  provides  that  the  assets 
of  all  of  the  land  banks  constitute  security  for  all 
bonds  issued  by  them.1  This  feature  of  the  Act  makes 
possible  the  sale  of  bonds  (debentures)  as  has  been 
described  in  Chapter  II.  As  we  have  seen,  the  land 
banks  estimate  what  their  needs  will  be  for  a  given 
period  and  a  bond  sale  is  conducted  based  on  this 
estimate.  In  other  words,  bonds  are  issued  and  sold 
in  advance  of  making  loans,  in  anticipation  of  the 
loaning  requirements  of  the  land  banks  for  a  given 
period.  Had  the  Farm  Loan  Act  restricted  the  land 
banks  to  the  issuance  of  mortgage  bonds  in  accordance 
with  the  usual  practice,  the  operation  of  converting 
mortgages  into  bonds  and  disposing  of  the  bonds 

1  The  Federal  Farm  Loan  Act,  Section  21. 


38  THE  FEDERAL  FARM-LOAN 

would  have  been  slow  and  unsatisfactory.  The  banks 
would  first  have  had  to  make  the  loans,  place  the 
mortgages  in  trust  as  a  special  security  for  the  bonds 
issued,  and  then  offer  the  bonds  on  the  market.  While 
in  practice  the  mortgage  <bond  and  the  debenture 
serve  the  same  purpose,  it  is  apparent  that  in  a  system 
caring  for  such  a  large  volume  of  business  as  does 
the  Federal  farm-loan  system,  the  debenture  form,  as 
usually  understood,  is  not  only  desirable,  but  essential.1 
The  debenture  bond  has  not  played  an  important 
part  in  the  history  of  England  and  America,  but  the 
experience  of  these  countries  with  this  method  of 
financing  has  been  of  value.  While  the  issuance  of 
land-mortgage  bonds  and  debentures  is  usually  asso- 
ciated with  European  land-mortgage  banks,  the  United 
States  is  not  entirely  unacquainted  with  the  issuance  of 
debentures,  based  on  farm  mortgages.  During  the  late 
'eighties  and  early  'nineties  a  number  of  institutions — 
about  one  hundred  and  sixty — in  the  New  England 
and  North  Atlantic  states,  undertook  to  sell  deben- 
tures of  this  nature.  The  disastrous  ending  of  these 
companies  is  still  fresh  in  memory,  while  those  estab- 
lished in  European  countries  have  developed  into  large 
and  successful  institutions.    The  general  nature  of  the 


1  It  is  also  contended  that  the  Federal  farm-loan  bonds  are  in  reality- 
collateral  trust  bonds  in  that  they  are  obligations  of  the  land  banks, 
secured  by  the  deposit,  in  trust,  as  collateral  to  the  same,  notes  (as 
distinguished  from  first  mortgages)  of  various  farmers,  which  are  in 
turn  secured  by  mortgages  on  real  estate.  (Opinion  of  M.  C.  Elliott, 
counsel,  Federal  Farm  Loan  Board,  rendered  June  10,  191 8.)  This 
distinction  as  to  form  of  security  is  in  its  nature  a  legal  one,  and  refers 
to  a  ruling  bearing  on  the  question  of  whether  or  not  notes  secured  by 
farm-loan  bonds  can  be  discounted  by  national  banks.  The  nature 
of  the  security  underlying  a  Federal  farm-loan  bond,  or,  as  it  is  more 
properly  called,  land-bank  bond,  is  discussed  in  this  chapter. 


SYSTEM  IN  OPERATION  39 

security  was  the  same  in  that  it  consisted  of  mortgages 
on  real  estate.  This  being  the  case,  inquiry  must  be 
made  into  the  methods  of  operation.  The  underlying 
principles  of  the  bond-issuing  institutions  of  Europe 
were  entirely  lacking  in  these  early  debenture  com- 
panies. They  were  not  subject  to  inspection  or  super- 
vision under  Federal  law,  whereas  European  institu- 
tions were  safeguarded  by  a  careful  system  of  state 
supervision.  No  standard  governing  mortgage  securi- 
ties existed,  and  therefore  it  was  possible  to  use  inflated 
estimates  in  land  values.  There  was  no  protection 
fund  in  the  form  of  stock  subscriptions  and  reserve,  or 
any  restrictions  as  to  the  ratio  between  the  bonds 
issued  and  their  capital  and  surplus.  These  provisions 
are  fundamental  in  European  institutions.  The  great- 
est undermining  influence,  however,  in  connection 
with  the  operations  of  these  early  debenture  companies 
was  the  practice  of  substituting  inferior  mortgages  for 
collateral  securities  withdrawn.  This,  coupled  with  the 
fact  that  they  operated  without  restriction  or  super- 
vision from  any  source,  brought  about  their  speedy 
collapse.  The  early  history  of  American  banks  and 
insurance  companies  is  a  parallel  and  was  equally  dis- 
couraging. It  was  not  until  the  banks  and  insurance 
companies  were  placed  under  government  regulation 
and  inspection  that  a  sound  system  of  banking  and 
insurance  was  established. 

The  underlying  principles  of  co-operative  rural 
credit  upon  which  European  systems  have  been  built 
were  recognized  by  the  authors  of  the  Federal  Farm 
Loan  Act.  They  realized  that  a  successful  system 
must  be  launched  under  the  auspices  of  the  govern- 


4o  THE   FEDERAL  FARM-LOAN 

mcnt  itself  and  that  the  government  must  in  a  measure 
maintain  supervision  over  its  operations;  that  the 
distinctive  features  of  European  long-term  mortgage 
credit — that  is,  the  issue  of  land-mortgage  bonds  and 
the  methods  of  amortization  payments — should  b?  in- 
corporated in  any  American  system  of  land-mortgage 
banking;  and  that  the  system  must  be  so  built  as  to 
command  the  confidence  of  the  investing  public  in 
order  that  it  might  have  at  its  disposal  at  all  times 
ample  funds  to  care  for  its  needs.  This  confidence  is 
assured  by  so  safeguarding  the  land  banks  as  to  pre- 
vent a  repetition  of  the  conditions  which  led  to  failure 
in  the  early  debenture  companies.  The  utmost  care 
is  taken  in  granting  of  credit  (to  be  described  in  Chap- 
ters IV  and  V),  and  this  leads  to  the  selection  of  con- 
servative mortgage  securities  and  renders  less  likely 
the  use  of  inflated  estimates  in  land  values.  In  addi- 
tion thereto,  the  Farm  Loan  Act  provides  for  capital 
stock,  and  a  reserve,  and  places  restriction  upon  the 
issuance  of  bonds,  in  accordance  with  the  approved 
practice  of  similar  institutions  in  Europe.  The  prac- 
tice of  the  debenture  companies  of  improperly  sub- 
stituting mortgages  held  as  collateral  to  their  bonds  is 
guarded  against  in  the  Farm  Loan  Act  by  a  provision 
bearing  on  the  duties  of  the  farm-loan  registrar.1 

Notwithstanding  the  early  American  experience  of 
debenture  companies,  the  advantages  of  the  mortgage 
bond  or  debenture  from  an  investor's  point  of  view  was 


1  The  farm-loan  registrar  is  charged  with  the  duty,  under  bond,  of 
seeing  that  Federal  farm-loan  bonds  outstanding  do  not  exceed  the 
amount  of  the  collateral  security  pledged.  Such  security  may  be  either 
first  mortgages,  United  States  government  bonds,  or  cash. — The  Fed- 
eral Farm  Loan  Act,  Section  19. 


SYSTEM   IN   OPERATION  41 

apparent.  Under  the  prevailing  practice  of  the  farm- 
mortgage  loan  business  of  the  United  States — where 
the  note  and  mortgage  is  sold  directly  to  the  investor — 
the  investor  is  subjected  to  a  great  deal  of  trouble  and 
inconvenience.  In  the  first  place,  he  must  either  have 
personal  knowledge  of  all  of  the  circumstances  affect- 
ing the  security  or  he  must  rely  for  such  information 
upon  a  third  party.  If  he  relies  on  his  personal  knowl- 
edge he  must  of  course  assure  himself  as  to  the  validity 
of  the  title  to  the  land,  give  attention  to  the  upkeep 
of  taxes  and  insurance,  and  personally  make  collection 
of  interest  and  principal  when  due.  In  the  event  that 
a  third  party,  such  as  a  mortgage  company  or  mort- 
gage bank,  furnishes  information  and  performs  this 
service,  the  investor  must,  of  course,  ascertain  for 
himself  the  reliability  of  the  mortgage  company  or 
bank,  which  it  is  often  difficult  for  him  to  do.  The 
investor,  too,  may  not  find  it  easy  to  secure  a  mortgage 
in  just  the  amount  which  he  desires  to  invest  or  for  the 
period  of  time  most  suitable  to  him. 

There  are  no  such  disadvantages  if  the  farmer's 
security  is  converted  into  Federal  farm-loan  bonds. 
These  bonds  are  standardized  as  to  form  and  amount. 
They  are  issued  in  convenient  denominations  for  a 
suitable  period  of  time,  and  with  convenient  and  reli- 
able means  for  the  collection  of  principal  and  interest. 
Federal  farm-loan  bonds  run  for  a  period  of  twenty 
years,  but  are  redeemable  five  years  from  the  date 
of  their  issue.  The  five-year  redemption  provision 
corresponds  to  the  minimum  period  for  which  a  Fed- 
eral farm  loan  can  be  made.  Bonds  are  issued  in 
denominations  of  $40,  $100,  $500,  and  $1,000.    They 


42  THE   FEDERAL   FARM-LOAN 

are  issued  in  registered  and  coupon  forms,  interest 
being  payable  semiannually  at  the  bank  of  issue,  both 
principal  and  interest  being  payable  in  gold  or  lawful 
money.  Interest  coupons  are  payable  at  any  Federal 
land  bank  or  Federal  Reserve  bank  in  the  United 
States.    (See  sample  form  of  bond  on  following  page.) 

The  security  underlying  Federal  farm-loan  bonds 
consists  in  the  first  instance,  of  mortgages  on  farm 
lands,  carefully  selected  according  to  reliable  and  uni- 
form standards.  These  mortgages,  pledged  as  col- 
lateral, are  secured  by  the  personal  undertaking  of 
the  borrower;  by  the  security  of  the  mortgaged  land, 
at  least  double  in  value  to  the  amount  of  the  loan ;  by 
the  capital,  reserves,  and  earnings  of  the  local  asso- 
ciation indorsing  the  loans;  and  by  the  liability  of  the 
members  of  the  indorsing  association  to  double  the 
amount  of  the  stock  held  by  them.  In  addition  to 
the  security  of  all  of  the  mortgages  issued  by  all  of 
the  land  banks,  at  least  equal  in  amount  to  the  out- 
standing bonds,  every  farm-loan  bond  is  secured  by 
the  capital,  reserves,  and  earnings  of  the  land  bank 
which  issued  them  and  by  the  capital,  reserves,  and 
earnings  of  the  eleven  other  land  banks.  Manifestly 
these  are  adequate  safeguards. 

The  outstanding  feature  of  this  new  system  of  land- 
mortgage  banking  is  standardization,  not  only  of  the 
credit  granted  (to  be  further  discussed  in  the  chapters 
on  loans),  but  also  of  the  form  of  security  placed  on 
the  market.  Through  standardization,  coupled  with 
satisfactory  assurances  that  those  standards  will  be 
maintained,  it  has  been  possible  to  command  a  market 
for  Federal  farm-load  bonds  in  such  volume  as  to 


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ISSUED  NOV.  1.  1917. 
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FAYABLE  NOV.  1.1937. 

INTEREST  PAYABLE 
HAY1  AND  NOVEMBER  I. 


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SYSTEM   IN   OPERATION  43 

provide  funds  for  the  continuous  operation  of  the  land 
banks. 

Of  equal  importance  to  the  investor  and  the  farmer- 
borrower  is  the  provision  in  the  Federal  Farm  Loan 
Act  by  which  all  farm-loan  bonds  are  exempted  from 
Federal,  state,  municipal,  and  local  taxation.1  This 
exemption  makes  these  bonds  especially  attractive  to 
investors  and  assists  in  reducing  materially  the  rate 
of  interest  charged  the  borrowers.  While  there  was 
considerable  opposition  to  this  feature  of  the  Farm 
Loan  Act,  the  commission  that  investigated  rural 
credit  systems  in  European  countries,  and  contempo- 
rary writers  as  well,2  were  of  the  opinion  that  it  was 
essential  to  the  establishment  of  a  successful  national 
system  of  rural  credits  in  this  country.  The  United 
States  Commission,  in  its  report  to  Congress,3  stated 
clearly  and  forcibly  its  position  on  the  subject  of  tax 
exemption;  in  fact,  its  statement  can  be  said  to  be  a 
summary  of  the  principal  arguments  made  by  the 
advocates  of  this  feature  of  the  Farm  Loan  Act.  The 
commission's  statement  follows: 

Finally,  the  commission  has  recognized  that,  in  order  that  the 
farmer  shall  get  the  benefit  of  the  lowest  interest  rates,  these  land- 
bank  bonds,  as  well  as  the  mortgages  or  deeds  of  trust  held  by  the 
banks  as  security  for  the  same,  must  be  exempted  from  taxation. 
It  will  be  conceded  that  the  tax  upon  a  mortgage  ultimately  comes 
out  of  the  borrower,  either  directly  or  in  the  shape  of  an  increased 
interest  rate  on  the  loan.  The  proposed  securities  are  based  on 
land,  and  land  is  the  one  asset  which  is  always  taxed  and  which 

1  The  Federal  Farm  Loan  Act,  Section  26. 

2  Senate  Document  380,  Sixty-third  Congress.  House  Document 
494,  Sixty-fourth  Congress.  Senate  Document  630,  Sixty-fourth  Con- 
gress. Morgan,  Land  Credits,  chap.  xii.  Herrick,  Rural  Credits,  chap. 
xix,  p.  224. 

3  Senate  Document  380,  Sixty-third  Congress. 
4 


44  THE   FEDERAL  FARM-LOAN 

cannot  evade  taxation.  The  fanner  must  pay  his  proportion  of 
governmental  charges,  because  his  land  is  always  there  and  the 
assessor  can  always  reach  it.  The  Federal  government  has  no  con- 
trol over  this  tax  on  land  and  does  not  attempt  to  control  it.  But 
it  is  recognized  that  a  tax  on  the  mortgage  created  by  the  farmer 
upon  this  land,  or  a  tax  upon  the  land-bank  bond  issued  by  the 
bank  on  the  security  of  such  mortgage,  must  ultimately  be  paid 
by  the  farmer  in  the  shape  of  increased  interest  charges.  As  an 
essential  to  the  carrying  out  of  any  reform  which  will  meet  the 
farmer's  requirements,  this  species  of  double  taxation  must  be 
done  away  with.  Consequently  the  bill  provides  for  the  exemption 
from  taxation  not  only  of  the  capital  stock  of  the  banks  to  be  so 
organized,  but  also  of  all  the  mortgages  and  deeds  of  trust  held  by 
the  bank  and  of  all  the  land-bank  bonds  issued  by  the  bank  against 
such  mortgages  and  deeds  of  trust.  In  exempting  the  capital  of 
the  bank  from  taxation  the  bill  follows  the  Federal  Reserve  Act, 
on  the  theory  that  the  same  privilege  in  this  respect  should  be 
extended  to  agricultural  banks  as  to  commercial  banks.  And  in 
exempting  from  taxation  the  mortgages  and  deeds  of  trust,  and 
the  land-bank  bonds  issued  against  the  same,  the  commission  has 
recognized  that  such  a  tax  is  simply  an  additional  charge  against 
the  farmer  who  had  already  paid  the  direct  tax  on  his  land.  It 
will  be  impossible  to  secure  money  for  the  farmer  on  the  best  terms 
unless  and  until  such  an  exemption  goes  into  effect. 

The  Supreme  Court  of  the  United  States,  in  the 
case  of  Smith  vs.  The  Kansas  City  Title  and  Trust 
Company,1  has  ruled  on  the  validity  of  the  tax- 
exemption  feature  of  the  Farm  Loan  Act.  Any  dis- 
cussion thereon  must  of  course  deal  with  it  as  a 
practical  or  economic  question  and  not  as  a  legal  ques- 
tion. The  provision  for  exempting  Federal  farm-loan 
bonds  from  taxation  constituted  the  crux  of  the  op- 
position to  the  Federal  farm-loan  system.  The  tax- 
free  bonds  issued  by  the  land  banks,  it  was  contended, 
were  a  great  menace  to  the  country.  This  assertion 
was  made  despite  the  fact  that  approximately  $16,- 

i U.S.    ;  41  Sup.  Ct.  Rep.  243.    (See  also  Appendix  D.) 


SYSTEM   IN   OPERATION  45 

000,000,000  in  tax-free  securities  in  the  form  of  state, 
county,  municipal,  drainage,  irrigation,  and  other 
bonds,  had  been  issued  and  absorbed  by  the  investing 
public.  The  menace  of  tax-free  securities  apparently 
did  not  become  evident  until  they  appeared  in  the 
form  of  Federal  farm-loan  bonds,  which,  at  this  writing 
(February,  192 1),  constitute  less  than  7  per  cent  of 
the  total  tax-exempt  bonds  in  this  country. 

In  the  sale  of  their  bonds,  the  land  banks  are  pro- 
hibited from  competition  with  railroad  bonds  and 
industrials  by  the  high  rate  of  interest  which  such 
bonds  bear.  They  do  not  compete  with  other  mort- 
gages because  in  order  to  secure  funds  to  meet  their 
requirements,  it  was  necessary  to  place  the  farmers' 
security  on  the  market  in  the  form  of  debentures. 
The  competition  that  the  land  banks  have  to  meet 
in  the  sale  of  their  bonds,  therefore,  is  with  govern- 
ment, municipal,  and  other  bonds,  which  are  tax  free. 
Congress  conferred  the  tax-exemption  privilege  upon 
the  land  banks  so  that  they  could  compete  with  tax- 
free  bonds  on  an  even  basis. 

Conceding,  for  the  sake  of  argument,  that  this  tax- 
exemption  privilege  is  a  subsidy  to  American  farmers, 
is  it  to  be  condemned  on  that  account  ?  Are  subsidies 
an  innovation  in  this  country?  For  reply  we  have 
but  to  turn  to  history.  "Infant"  industries  have 
flourished  in  this  country  under  a  protective  tariff, 
transcontinental  railroads  have  become  a  reality 
through  subsidies  in  the  form  of  land  grants,  and  our 
merchant  marine  has  been  fostered  by  subven- 
tions in  various  forms.  Until  recently,  our  agricul- 
tural   industry    has    developed    despite    inadequate 


46  THE   FEDERAL  FARM-LOAN 

financing.  This  was  possible,  as  we  have  seen,  largely 
because  of  the  abundance  of  cheap  lands.  However, 
with  the  passing  of  our  vast  public  domain  came  the 
need  for  more  capital.  In  order  that  capital  be  made 
available  in  such  form  and  under  such  conditions  as 
to  meet  the  needs  of  agriculture,  Congress  established 
the  Federal  farm-loan  system  and  extended  to  it  the 
privilege  of  tax  exemption.  The  question  of  tax  exemp- 
tion is  one  involving  the  whole  theory  of  taxation  and 
will  undoubtedly  receive  due  attention  from  writers 
on  the  subject.  It  is  sufficient  to  state  here  that  in 
the  opinion  of  those  who  believe  that  the  Federal 
farm-loan  system  has  a  place  in  American  economic 
life,  the  tax-exemption  feature,  under  present  condi- 
tions, constitutes  the  very  life  blood  of  the  system 
and  its  continued  existence  depends  thereon. 

The  statement  is  often  made  that  a  land-mortgage 
bond  is  the  best  possible  security.  If  European  ex- 
perience, and  more  particularly  that  of  Germany,  is 
a  criterion,  this  statement  is  undoubtedly  true,  for  it 
is  there  shown  that  the  land-mortgage  bond  is  "safer 
than  a  government  bond."  Land  debentures  of  the 
Silesian  Landschaft  during  the  Napoleonic  wars  fell 
to  84,  then  to  70  and  50,  while  those  of  the  Prussian 
government  sank  to  20.  Again,  during  the  revolution 
of  1848,  which  seriously  affected  all  values,  the  land 
debentures  of  the  Landschaftcn  of  Silesia  and  Pomer- 
ania  were  quoted  at  93,  of  West  Prussia  at  83,  and  of 
East  Prussia  at  96.  At  the  same  time,  Prussian  gov- 
ernment bonds  were  selling  at  69,  the  stock  of  the  Bank 
of  Prussia  at  63,  and  the  stock  of  the  government 
railroads  fell  from  90  to  30.    In  1850,  while  the  3.5 


SYSTEM  IN  OPERATION  47 

per  cent  government  bonds  of  Prussia  were  at  86.5, 
those  of  the  Silesian  Landschaft  were  quoted  at  93.75, 
those  of  the  Landschaft  of  Posen  at  102,  and  of  the 
Landschaft  of  Mecklenburg  at  103.1  The  writer  was 
able  to  secure,  through  the  United  States  Department 
of  State,  quotations  on  both  government  and  land- 
mortgage  bonds  in  Germany,  from  June  30,  1914,  to 
November  29,  191 9.  These  quotations  are  of  such 
interest  that  they  are  reproduced  on  the  following 
page. 

These  statistics  disclose  the  stability  of  land-mort- 
gage bonds  and  their  desirability  as  a  long-term  in 
vestment.  While,  of  course,  the  period  of  operation 
of  the  land  banks  has  been  too  brief,  and  not  only 
international  conditions,  but  our  domestic  affairs,  as 
well,  have  been  too  uncertain  to  permit  of  any 
accurate  deductions  being  made,  it  is  safe  to  predict 
that  Federal  farm-loan  bonds  will  display  stability 
equal  to  that  of  any  of  the  rural  credit-bonds  of  Euro- 
pean countries. 

1  Herrick,  Rural  Credits,  pp.  81  and  82. 


48 


THE   FEDERAL   FARM-LOAN 


PRICE  OF   GERMAN    STANDARD   BONDS 


Imperial  4% 

Imperial  $}4% 

Imperial  3  % 

Prussian  Consols  4% 

Prussian  Consols  3K% 

Prussian  Consols  3  % 

Kur  u  Neumark  Landschaft4%.  .  . 
Kur  u  Neumark  Landsehaft  3)4%. 
East  Prussische  Landsehaft  4%.  .  . 
East  Prussische  Landsehaft  3K%- 
East  Prussische  Landsehaft  3  % .  .  . 

Poscn  Landsehaft  4% 

Posen  Landsehaft  3  K  % 

Posen  Landsehaft  3  % 

Schleswig-Holstn.  Landsch.  4%.  .  . 
Schleswig-Holstn.  Landsch.  3K%- 
Schleswig-Holstn.  Landsch.  3%.  . . 

Westphalian  Landsehaft  4% 

Westphalian  Landsehaft  sH%-  •  •  • 

Westphalian  Landsehaft  3% 

Pomeranian  Landsehaft  4% 


June  30 

Dec.  31 

Jun.-  30 

1914 

1918 

1919 

99.OO 

79.OO 

69 .  OO 

86.20 

66 .  00 

63.OO 

76.80 

60.00 

60.OO 

99 .  00 

83.00 

74.OO 

86.20 

68.00 

63.OO 

76.90 

62.00 

60.OO 

96.25 

101 .00 

85.00 

96.OO 

93-25 

94.OO 

83.00 

79.OO 

76.00 

74.00 

99.80 

IOO.OO 

84.00 

92.OO 

76.00 

80.00 

93.20 

1 1  I . OO 

83.00 

IO3.OO 

75.00 

95.OO 

94  SO 

IO9.OO 

85.00 

95  •  00 

75.00 

85 .  00 

95  25 

105.00 

Nov.  29 
1919 


65.70 
61  .70 
63.60 
65.OO 
57-50 
55-75 
93.00 


85.00 
74-75 
74-75 

69.00 

101 .00 
90.25 


102.25 


97.00 


PRICE  OF  FEDERAL  FARM  LOAN  BONDS' 


Nov.  1 

Mav  1 

Nov.  1 

May  12 

Nov.  1 

May  1 

Oct.  26 

1917 

1918 

1918 

1919 

1919 

1920 

1920 

Federal    faTn    loan 

4i%,due  1937-  •  • 

101 

100 

Sold  on 
4%  basis 
at  101} 

100*4 

ioo-ioi 

92-96 

90  bid. 
None 
offered 

Federal    farm    loan 

5%,  due  1938 

Sold  on 

3.85%  basis 

at  104J 

103J-104 

102-103 

99-101 

97-97  § 

Federal    farm    loan 

4$%,  due  1939-  .  ■ 

100J-101 

92-96 

90-91 

Federal    farm    loan 

J 

4$%,  due  1938.  .  . 

Not  shown,  for  reason  tr 

at  issue  all  sold  to  banks. 

1  The  above  table  is  presented  through  the  courtesy  of  the  National 
City  Bank  of  New  York. 


IV 

FEDERAL    FARM    LOANS 

THE  new  plan  of  granting  farm  loans,  the  plan 
which  received  definite  national  recognition  in 
the  Federal  Farm  Loan  Act,  gives  equal  consideration 
to  the  problems  and  needs  of  the  farmer  and  of  the 
investor.  In  this  respect  it  was  somewhat  revolution- 
ary, for  previously  farm  loans  had  been  made  solely 
from  the  investor's  standpoint,  and  the  wants  of  the 
farmer  had  been  given  little  or  no  consideration.  A 
true  farm  loan  is  one  that  is  to  be  repaid  from  the 
earnings  of  the  land.  Nevertheless,  farm  loans,  so- 
called,  have  been  made  in  the  United  States  with  no 
thought  of  such  redemption.  They  have  run  for  peri- 
ods of  from  three  to  five  years,  although  in  most  cases 
it  was  manifestly  impossible  for  the  farmer-borrower 
to  repay  his  loan  from  the  earnings  of  his  land  within 
so  short  a  time.  The  terms  upon  which  farm  loans 
have  been  made  have  worked  as  great  a  hardship  as 
have  the  unnecessarily  high  interest  rates  charged 
American  farmers.  Institutions  and  individuals  who 
have  had  money  to  lend  have  not  seemed  to  realize 
that  the  financial  needs  of  farming  are  different  from 
those  of  other  industries,  and  must  be  differently  met, 
if  farming  is  to  continue  to  develop  properly  and  the 
country  at  large  to  prosper.    To  accomplish  the  pur- 


5o  THE   FEDERAL  FARM-LOAN 

pose  of  the  Federal  Farm  Loan  Act  it  has  been  neces- 
sary to  disregard,  in  a  measure,  established  precedents 
and  forms  in  the  making  of  farm  loans,  and  to  set  up 
new  standards.  These  new  standards,  however,  are 
not  experiments,  for  while  they  are  new  in  this  coun- 
try they  have  been  established  in  many  foreign  coun- 
tries for  over  a  century,  and  are  the  result  of  years  of 
experience  in  land-mortgage  banking. 

The  distinctive  features  of  the  new  system  can  be 
summed  up  conveniently,  as  follows:  long  term  of 
loan,  uniform  low  rate  of  interest,  and  the  amortiza- 
tion plan  of  repayment  of  loan.  In  considering  the 
term  of  the  loans  it  is  to  be  remembered  that  we  are 
dealing  with  loans  which  the  farmer  employs  in  the 
acquisition  and  improvement  of  his  land  and  the 
purchase  of  equipment,  commonly  called  fixed  capital, 
and  not  with  circulating  capital,  which  is  used  for 
short  periods  in  growing  and  harvesting  and  market- 
ing crops.  The  problem  of  supplying  circulating  capi- 
tal is  essentially  different  from  that  of  providing  fixed 
or  permanent  capital.  The  former  is  not  germane  to 
a  discussion  of  the  Federal  farm-loan  system,  for  that 
system  was  established  to  provide  a  channel  through 
which  the  farmers  of  the  country  could  market  their 
long-term  securities,  and  does  not  provide  for  their 
short-time  or  personal  needs. 

In  the  establishment  or  development  of  a  business 
enterprise,  fixed  capital  is  provided  for  by  the  sale 
of  bonds  or  stock  on  a  basis  which  will  enable  the 
business  itself  to  retire  the  bonds  or  make  the  stock 
a  profitable  investment  from  its  own  earnings.  In 
addition,   loans  are  made  by  commercial  banks  to 


SYSTEM   IN   OPERATION  51 

business  institutions  in  accordance  with  their  ability  to 
repay.  Because  of  rapid  turnover,  the  demands  of  the 
merchant  or  manufacturer  can  be  satisfied  if  these 
loans  run  from  three  months  to  three  years.  With 
the  establishment  of  the  Federal  Reserve  system  the 
commercial  world  has  erected  for  itself  a  magnificent 
financial  structure,  giving  elasticity  to  a  hitherto  rigid 
system  of  banking,  and  doing  everything  possible 
toward  solving  its  financial  problems. 

The  financial  needs  of  farming  are  different  from 
those  of  any  other  industry.  The  farmer  is  unable,  in 
any  but  exceptional  cases,  to  market  bonds  of  his  own 
upon  the  security  of  his  farm.  His  fixed  capital  forms 
a  larger  proportion  of  his  investment  than  does  the 
business  man's.  His  turnover  is  not  so  rapid.  He 
buys  live  stock,  machinery,  buildings,  and  land,  and  it 
is  many  years  before  he  can  realize  upon  them  profit- 
ably. If  he  had  to  repay  a  loan  in  three  or  five  years, 
the  farmer  would  naturally  hesitate  before  building  a 
barn,  silo,  or  hog  house,  before  constructing  a  fence  or 
purchasing  dairy  stock.  Such  investments  may  be 
precisely  the  ones  that  would  make  his  farm  a  more 
productive  unit,  but  the  earnings  of  the  farm  in  so 
short  a  period  of  time  could  not  take  care  of  the  neces- 
sary loan.  The  farmer  would,  of  course,  renew  his  loan 
when  it  fell  due,  but  he  would  run  grave  risk  of  the 
money  market  being  unfavorable  at  the  time,  and 
even  if  he  did  renew  it  there  would  be  additional 
costs,  such  as  commissions,  recording  charges,  abstract 
fees,  registration  taxes,  etc.,  incident  to  such  renewal. 
The  farmer  who  desires  to  equip  his  farm  with  costly 
but  necessary  agencies  of  production  must  have  credit 


52  THE   FEDERAL  FARM-LOAN 

for  a  comparatively  long  period  of  time,  with  the 
privilege  of  gradually  extinguishing  the  principal  as 
the  interest  is  paid,  and  with  the  further  right  of  ex- 
tinguishing the  entire  principal  whenever  he  desires  to 
do  so. 

The  Farm  Loan  Act  provides  that  the  rate  of  interest 
shall  not  exceed  the  rate  on  farm-loan  bonds  by  more 
than  i  per  cent,  and  in  no  event  be  in  excess  of  6  per 
cent,  exclusive  of  amortization  payments.  Statistics 
of  the  United  States  Department  of  Agriculture  show 
that  the  average  rate  of  interest  and  commissions  on 
farm-mortgage  loans  exceeds  6  per  cent  in  thirty-six 
states  and  rises  as  high  as  io  per  cent  in  the  states  of 
Montana,  Wyoming,  and  New  Mexico.1  The  low  rate 
feature  of  a  Federal  farm  loan  is  obviously  a  source  of 
great  saving  to  the  farmers  in  most  of  the  states  of  the 
United  States. 

The  interest  rate  charged  to  borrowers  has  been 
made  uniform  throughout  the  United  States.  This 
was  not  specifically  provided  for  in  the  Farm  Loan 
Act,  but  was  necessitated  by  the  bond  situation.  It 
was  obviously  impossible  for  a  land  bank  operating  on 
the  Atlantic  seaboard  to  market  its  low-rate  bonds 
when  the  bond  buyer  at  the  same  time  could  secure  a 
similar  bond,  bearing  from  2  to  3  per  cent  higher  rate, 
in  the  Western  states.  The  result  of  variation  in  rate 
would  be  that  some  of  the  land  banks  would  be  over- 
financed,  while  others  would  not  be  able  to  sell  their 
bonds  except  at  a  prohibitive  discount.  Therefore,  in 
order  to  insure  the  financing  of  all  the  land  banks,  a 


1  The  United  States  Department  of  Agriculture,  Bulletin  No.  384, 
p.  2. 


SYSTEM   IN   OPERATION  53 

standard  bond  has  been  issued — standardized  not  only 
as  regards  maturities  and  the  security  underlying 
them,  but  also  as  regards  the  interest  rate. 

Heretofore  the  interest  rate  on  land  mortgages  has 
varied  from  district  to  district.1  Two  reasons  for  this 
at  once  occur  to  our  minds.  One  is  variation  in  the 
supply  of  capital  and  the  other  is  the  variation  in  risk. 
It  is  apparent  that  in  localities  where  there  is  a  large 
demand  for  funds  during  certain  seasons  of  the  year 
and  a  small  demand  during  other  seasons,  a  com- 
paratively high  rate  must  be  charged  in  accordance 
with  the  seasonal  requirements.  There  are  econo- 
mists who  contend  that  it  is  wrong  arbitrarily  to  level 
the  interest  rate  throughout  the  entire  United  States. 
They  argue  that  interest  rates  are  governed  by  local 
conditions  somewhat  as  freight  rates  are  governed  by 
water  competition.  That  this  was  true  under  the  old 
system  of  mortgage  banking,  where  every  loan  made 
was  individually  handled,  is  unquestioned.  The  cost 
of  making  a  loan — inspecting  the  property  and  nego- 
tiating a  loan — varied  with  the  accessibility  of  the 
property  and  whether  the  loan  was  made  with  local 
money  or  with  outside  capital.  The  costs  of  inspecting 
necessarily  vary  even  under  the  Federal  farm-loan 
system,  but  because  this  system  has  graded  or  stand- 
ardized all  loans  and  made  more  systematic  the  work 
of  the  appraiser,  they  vary  less  than  under  the  old 
system  and  have  been  considerably  reduced.  These 
graded  loans,  when  made,  become  security  for  bonds 


1  The  average  rate  throughout  the  United  States  varied  from  as 
low  as  5.2  per  cent  to  as  high  as  io.i  per  cent.  United  States  Depart- 
ment of  Agriculture,  Bulletin  No.  384,  pp.  4-6. 


54  THE  FEDERAL  FARM-LOAN 

issued.  The  investors  purchasing  such  bonds,  of 
course,  know  that  the  security  conforms  to  certain 
standards.  The  cost  of  negotiating  the  farmers'  loans 
in  the  form  of  bonds  is  no  greater  for  one  locality  than 
for  another,  if  they  are  sold  through  one  channel,  such 
as  the  Federal  farm-loan  system. 

As  has  been  noted,  variation  in  risk  leads  to  varia- 
tion in  interest  rates.  It  is  contended  that  low  rates 
can  be  commanded  only  in  those  districts  in  which  in- 
vestors have  complete  confidence.  The  proponents  of 
a  uniform  rate  of  interest,  however,  contend  that  money 
is  worth  no  more  in  Minnesota  than  it  is  in  Illinois,  pro- 
vided the  risk  remains  the  same.  A  $1,000  loan  on  a 
farm  worth  $2 ,  500  in  northeastern  Minnesota  should  be 
just  as  good  as  a  $10,000  loan  on  a  farm  worth  $25,000 
in  Illinois,  provided  the  same  standard  of  valuation  is 
used,  such  as  the  earning  power  of  each  farm.  The  ratio 
of  security  is  the  same.  There  is  no  experience  table,1 
however,  back  of  the  northeastern  Minnesota  loan  as 
there  is  back  of  the  Illinois  loan.  But  loans  that  are 
made  throughout  a  large  territory,  such  as  the  United 
States,  based  upon  a  certain  percentage  of  the  value 
of  the  land  for  agricultural  purposes,  so  distribute  the 
risk  as  to  make  it  practically  negligible. 

While  recognizing  the  need  for  cheaper  money  for 
agriculture,  the  authors  of  the  Federal  Farm  Loan 
Act  realized  that  of  equal  importance  were  the  condi- 
tions and  terms  upon  which  loans  were  to  be  made. 
The  Farm  Loan  Act  acknowledges  the  truth  that  a 

1  Reference  is  had  to  the  history  of  making  farm-mortgage  loans  in 
a  given  territory — that  is,  the  average  loan  made  on  a  given  tract 
over  a  period  of  years  taking  into  consideration  the  legitimate  increase 
in  land  values,  percentage  of  losses,  and  the  like. 


SYSTEM  IN  OPERATION  55 

farmer  who  makes  his  living  solely  from  his  farm 
cannot  pay  the  purchase  price  of  the  land  or  the  cost 
of  the  permanent  improvements  except  from  the  net 
earnings  of  his  industry — that  is,  the  surplus  after  he 
has  paid  taxes,  the  cost  of  upkeep  and  necessary 
family  expenses.  Accordingly,  it  provides  for  loans 
running  from  five  to  forty  years.1  This  makes  the  life 
of  the  loan,  or  the  length  of  time  which  the  loan  is  to 
run,  wholly  optional  with  the  borrower. 

All  Federal  farm  loans  are  made  on  the  amortiza- 
tion plan.  The  term  amortiztion  is  as  yet  unfa- 
miliar to  the  average  American.  In  time  it  will  be- 
come a  part  of  everyone's  vocabulary,  for  it  is  the 
only  basis  upon  which  a  farm  loan  should  be  made  if 
the  welfare  of  the  farmer  is  to  be  taken  into  consid- 
eration. Amortization  is  a  term  applied  to  the  process 
of  reducing  indebtedness  (throughout  a  period  of 
years)  by  installment  payments  of  a  fixed  amount, 
which  include  interest  and  a  part  of  the  principal. 
For  the  purpose  of  illustration,  let  us  assume  that  a 
farmer  borrows  $1,000  through  the  farm-loan  system, 
at  5^2-per-cent  interest,  and  on  a  "i-per-cent  amorti- 
zation." 2   He  pays  $65  a  year  in  semiannual  payments 

1  While  Federal  farm  loans  cannot  be  paid  off  until  after  five  years 
from  the  date  they  are  made,  except  at  the  option  of  the  land  bank, 
payments  in  any  multiple  of  the  amortization  installments  or  in  full 
can  be  made  on  any  interest-paying  date  without  any  bonus  or  com- 
mission. After  the  five-year  period  the  farmer-borrower  has  an 
absolute  right  to  pay  off  his  loan  on  any  interest  period.  Consequently, 
if  interest  rates  should  fall,  the  farmer  could  pay  off  his  mortgage 
and  borrow  again  on  more  advantageous  terms.  On  the  other  hand, 
if  interest  rates  should  rise,  the  land  bank  could  not  make  the  farmer 
borrower  pay  the  increased  rate,  for  the  agreed  rate  holds  good  until 
the  mortgage  falls  due,  and  in  the  meantime  the  amortization  pay- 
ments extinguish  the  loan. 

2  The  amount  paid  on  principal  bears  a  direct  relationship  to  the 
period  of  time  for  which  an  amortized  loan  is  made.    Thus,   while 


56  THE   FEDERAL   FARM-LOAN 

of  $32.50  each  until  the  loan  is  discharged.  That  is,  of 
course,  6  3-^  per  cent  per  annum  on  the  sum  borrowed. 
We  commonly  say  that  he  is  paying  5^-per-cent  in- 
terest and  1  per  cent  on  the  principal,  and  that  on  this 
"i-per-ccnt  amortization"  the  loan  will  be  extin- 
guished within  thirty-four  and  a  half  years.  But  the 
way  it  works  out  is  this.  His  first  payment  is  applied 
as  follows:  $27.50  to  the  payment  of  interest  and 
$5  to  reduction  of  the  principal.  The  interest  on  the 
next  payment  is  figured  at  $%  per  cent  on  the  reduced 
amount  of  principal  of  $995  (because  of  his  first  pay- 
ment on  principal  of  $5),  and  is  applied  as  follows: 
$27.36  on  interest  and  $5.14  on  the  principal.  He 
continues  making  payments  of  $32.50  each  six  months 
during  the  thirty-four  and  a  half  years,  but  the  interest 
payment  is  constantly  growing  smaller  and  the  pay- 
ment on  the  principal  is  steadily  growing  larger,  so 
that  at  the  end  of  the  period  of  thirty-four  and  a  half 
years  he  will  pay  $1.71  interest  and  $30.79  on  the 
principal.  By  means  of  these  small  payments  his  prin- 
cipal is  reduced  little  by  little  so  that  at  the  end  of 
thirty-four  and  a  half  years  it  is  entirely  paid  up.  If 
the  farmer  chooses  to  pay  a  larger  amount  on  principal, 
which  he  is  compelled  to  do  in  certain  of  the  ' '  special- 
ized" farming  districts,  such  as  the  fruit-growing  sec- 
tions of  California,  his  loan  will  be  retired  within  a 
shorter  period. 

The  advantages  of  the  long-term,  amortized  Federal 
farm  loan  are  many.    In  the  first  place,  the  farmer 

an  annual  payment  on  principal  of  1  per  cent  of  the  original  amount 
of  a  loan  made  on  a  5^-per-cent  interest  basis  retires  it  in  thirty -four 
and  a  half  years,  a  payment  of  2  per  cent  will  liquidate  the  same  loan 
in  twenty-four  and  a  half  years. 


SYSTEM   IN   OPERATION 


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58  THE   FEDERAL  FARM-LOAN 

who  secures  such  a  loan  is  relieved  .of  the  dread  of 
foreclosure,  for  if  he  keeps  up  his  annual  or  semi- 
annual amortization  payments  the  principal  will  never 
fall  due.  When  the  loan  has  run  its  full  period  it  is 
paid.  These  payments  are  small  and  do  not  exceed 
the  amount  paid  as  interest  in  most  of  the  states  of 
the  Union.  Aside  from  stimulating  thrift  and  encour- 
aging systematic  saving,  long-term  credit  of  this 
nature  will  enable  the  fanner  to  have  on  hand  a 
greater  surplus  of  funds.  As  a  consequence,  he  will 
become  a  cash  customer  for  the  merchant  and  a  de- 
positor in  the  local  bank.  Any  rural-credit  system 
which  enlarges  farming  operations,  increases  the  pro- 
duction of  the  soil,  or  stimulates  the  agricultural  in- 
dustry, as  does  the  Federal  farm-loan  system,  adds  to 
the  value  of  the  capital  stock  of  every  bank  located 
in  a  farming  section,  increasing  its  dividends,  surplus, 
and  profits. 

A  Federal  farm  loan  can  be  made  enly  when  it  is 
secured  by  a  first  mortgage  on  farm  land  within  the 
land-bank  district  in  which  the  bank  is  located,  and 
only  to  a  "natural  person,"  who  is  the  owner  or  about 
to  become  the  owner  of  qualified  farm  land.  No  loan 
can  be  made,  however,  unless  such  person  is  "at  the 
time  or  shortly  to  become,  engaged  in  the  cultivation 
of  the  farm  mortgaged."1 

The  Farm  Loan  Board  has  defined  an  actual  farmer 
as  "one  who  conducts  the  farm  and  directs  its  entire 

1  Federal  farm  loans,  therefore,  cannot  be  made  on  rented  farms, 
though  a  renter  who  is  about  to  acquire  title  may  secure  a  loan.  The 
meaning  of  the  term  qualified  farm  land  is  necessarily  indefinite.  What 
lands  are  qualified  as  security  for  a  Federal  farm  loan  depends  upon 
factors  such  as  the  soil  conditions,  market  facilities,  rainfall,  and  the 
like^  which  make  up  the  value  of  the  land  for  agricultural  purposes. 


SYSTEM   IN  OPERATION  59 

operation,  cultivating  the  same  with  his  own  hands 
or  by  means  of  hired  labor.  An  owner,  to  borrow 
under  the  Farm  Loan  Act,  must  be  responsible  in 
every  way,  financially  and  otherwise,  for  the  cultiva- 
tion of  his  land.  A  loan  cannot  be  made  to  a  corpora- 
tion, guardians,  executors,  administrators,  or  trustees. 
There  is  an  exception  in  that  a  guardian  may  borrow 
if  such  guardian  is  father,  mother,  husband  or  wife, 
and  has  a  joint  interest  in  the  property  of  the  ward.1 
The  guardian,  in  such  case,  must  sign  individually  the 
note  and  mortgage  and  act  as  a  member  of  the  national 
farm-loan  association. 

As  has  already  been  stated,  the  purpose  that  the 
framers  of  the  Farm  Loan  Act  had  primarily  in  view 
was  the  development  of  agriculture.  In  order  that 
the  loans  made  through  the  farm-loan  system  be 
directed  toward  this  end,  they  specifically  provided 
the  purposes  for  which  a  loan  may  be  made.  These 
purposes  are  enumerated  in  Section  12,  subdivision  4, 
of  the  Farm  Loan  Act,  as  amended,  as  follows: 

Such  loans  may  be  made  for  the  following  purposes  and  for  no 
other:  (a)  To  provide  for  the  purchase  of  land  for  agricultural 
uses,  (b)  To  provide  for  the  purchase  of  equipment,  fertilizers, 
and  live  stock  necessary  for  the  proper  and  reasonable  operation 
of  the  mortgaged  farm;  the  term  "equipment"  to  be  defined  by 
the  Federal  Farm  Loan  Board,  (c)  To  provide  buildings  and  for 
the  improvement  of  farm  lands;  the  term  "improvement"  to  be 
defined  by  the  Federal  Farm  Loan  Board,  (d)  To  liquidate  in- 
debtedness of  the  owner  of  the  land  mortgaged  incurred  for  agri- 
cultural purposes,  or  incurred  prior  to  the  organization  of  the  first 

1  This  ruling  of  the  Farm  Loan  Board  has  afforded  relief  in  many 
instances  where  death  intervened  while  the  loan  was  in  the  process 
of  closing;  in  fact,  in  a  number  of  cases,  under  this  ruling,  the  ward 
was  able  to  retain  the  farm  and  continue  its  operation,  which  would 
not  have  been  the  case  had  the  loan  not  been  closed. 

5 


6o  THE   FEDERAL  FARM-LOAN 

farm-loan  association  established  in  and  for  the  county  in  which 
the  land  is  situated. 

The  Farm  Loan  Board  has  ruled  that  under  the 
term  equipment  may  be  included  the  improvements 
needed  in  the  conduct  of  the  farm  to  facilitate  its 
operation,  including  teams,  as  well  as  machinery,  tools, 
and  the  like.  The  term  improvement  has  been  defined 
to  include  anything  in  the  form  of  a  beneficial  structure 
or  any  useful,  permanent,  physical  change  tending  to 
increase  the  productive  value  of  the  farm ;  for  example, 
clearing,  tiling,  draining,  fencing,  and  building. 

In  determining  what  land  is  acceptable  as  security 
for  a  federal-farm  loan,  the  Farm  Loan  Board  has 
held  that  "it  is  not  necessary  that  all  the  land  included 
in  the  mortgage  shall  be  under  cultivation";  that 
"one  of  the  purposes  for  which  money  may  be  bor- 
rowed is  to  prepare  land  for  cultivation";  that  "a 
reasonable  amount  of  pasture  land  in  connection  with 
a  farm  is  desirable";  and  that  "such  pasture  land 
may  be  appraised  in  such  appraisal."  The  board  has 
ruled  further  that  "loans  may  be  made  on  lands 
which  are  primarily  agricultural  lands,  on  which,  how- 
ever, there  are  leases  carrying  the  right  to  remove  oil, 
gas,  or  other  minerals,  provided  that  the  extent  to 
which  such  use  may  interfere  with  the  use  of  the  land 
for  agricultural  purposes  be  taken  into  consideration"; 
and  that  "the  land  bank  require  the  borrower  to  in- 
clude in  his  mortgage  his  rights  under  such  lease"; 
and  that  "any  proceeds  therefrom  shall  be  applied  to 
the  payment  of  the  mortgage."  Where  lands  under 
drainage  projects  are  subject  to  a  fixed  annual  charge 
the  board  has  ruled  that  "this  charge  may  be  regarded 


SYSTEM   IN   OPERATION  61 

as  of  the  same  nature  as  a  municipal  or  school-district 
tax,  which  does  not  prevent  the  making  of  a  loan  on 
such  land,  but  must  be  taken  into  account  in  apprais- 
ing its  value." 

Orchard  lands  and  lands  under  irrigation  or  drain- 
age projects  have  been  subjects  of  special  considera- 
tion by  the  Farm  Loan  Board.  Orchard  lands  in 
many  sections  of  the  United  States  are  highly  devel- 
oped and  very  productive.  In  some  cases,  however, 
these  lands  have  no  value  for  other  agricultural  pur- 
poses. The  Farm  Loan  Board  has  taken  the  view 
that  "the  value  consists  of  the  trees  and  not  of  the 
land,  and  trees  are  not  a  'permanent,  insurable  im- 
provement' in  that  they  are  subject  to  utter  destruc- 
tion by  either  freezing  or  neglect."  As  a  consequence, 
the  board  ruled  that  "where  the  lands  have  a  basic 
agricultural  value,  such  value  shall  be  the  basis  for 
loans ' ' ;  that  ' '  orchards  shall  not  be  regarded  as  per- 
manent improvements,  but  shall  be  taken  into  con- 
sideration as  enhancing  the  general  value  of  the  land 
and  in  determining  its  productive  value."  A  con- 
sideration of  the  difficulties  presented  in  making  loans 
on  irrigation  and  drainage  projects  necessitated  em- 
ploying an  experienced  engineer. 

Considerable  discussion  took  place  during  the  early 
period  of  operation  as  to  what  constituted  a  farm  for 
the  purpose  of  making  a  loan  under  the  farm-loan 
system.  Applications  were  submitted  for  loans  on 
lands  which,  in  fact,  were  summer  homes  or  suburban 
lots.  This  problem  was  solved  by  the  Farm  Loan 
Board  by  applying  an  economic  test,  as  stated  in  the 
following  rule: 


62  THE   FEDERAL  FARM-LOAN 

A  farm  must  be  of  sufficient  area  to  yield  at  the  hands  of  an 
ordinary  capable  farmer,  putting  it  to  the  use  to  which  it  is  gen- 
erally adapted,  and  using  average  methods,  an  income  sufficient 
to  support  the  family  of  the  applicant  and  discharge  the  interest 
and  amortization  payments.1 

While  the  period  of  operation  of  the  farm-loan  sys- 
tem is  yet  too  brief  to  hazard  a  prediction  as  to  the 
beneficial  effects  which  will  remit  from  the  provision 
of  the  Farm  Loan  Act  specifying  the  purposes  for 
which  loans  may  be  made,  it  is  of  interest  to  note 
that,  from  a  detailed  statement  issued  by  the  Farm 
Loan  Board  covering  83,826  loans  aggregating  $251,- 
426,600,  11  per  cent  of  the  amount  loaned  was  used 
for  the  purchase  of  land  mortgaged,  and  2  per  cent 
for  the  purchase  of  other  land,  making  a  total  of  13 
per  cent  for  the  purchase  of  land;  9  per  cent  for 
buildings  and  improvements;  2  per  cent  for  imple- 
ments and  equipment;  3  per  cent  for  the  purchase  of 
live  stock;  59  per  cent  for  the  liquidation  of  existing 
mortgages;  9  per  cent  to  pay  other  debts;  and  5  per 
cent  for  the  purchase  of  stock  as  required  in  the  Act.2 
To  insure  against  the  use  of  the  proceeds  of  Federal 
farm  loans  for  other  than  productive  purposes,  the 
Farm  Loan  Act  was  amended  in  April,  1920,  prohibit- 
ing the  refunding  of  any  mortgages  unless  the  indebt- 
edness was  incurred  for  agricultural  purposes.3  The 
far-reaching  effect  of  this  compulsory  direction  of 
money  to  productive  channels  will  benefit  not  the  far- 
mer alone — its  value  to  the  country  at  large  will  in 
time  manifest  itself  by  higher  standards  of  living. 

1  The  use  of  the  term  average  has  reference  to  the  methods  of  farm- 
ing in  a  given  locality  and  not  to  an  area  as  large  as  a  state  or  land- 
bank  district. 

3  Second  Annual  Report  of  the  Federal  Farm  Loan  Board,  p.  8 
3  Public  Document  No.  182,  Sixty-sixth  Congress,  Section  4. 


FEDERAL  FARM  LOANS  (CONTINUED) 

THE  success  of  any  system  of  making  farm  loans 
depends  upon  the  correct  appraisement  of  land 
values.  Whatever  safeguards  there  may  be  in  the  way 
of  restrictions  upon  purposes  for  which  loans  may  be 
made,  limitations  on  the  amount  to  be  loaned  to  a 
certain  percentage  of  the  farm  value,  or  the  establish- 
ment of  insurance  funds  against  losses,  of  surpassing 
importance  is  the  correct  valuation  of  the  security 
underlying  the  loans.  If  the  work  of  appraising  is 
carelessly  or  faultily  performed,  the  result  is  soon  re- 
flected in  an  increasing  number  of  foreclosures  and 
overdue  interest  payments.  This  condition,  unless  cor- 
rected, leads  to  serious  difficulties  and  eventual  disaster. 
The  methods  of  ascertaining  the  value  of  farm  prop- 
erty are  perhaps  as  varied  as  there  are  men  engaged 
in  the  work  of  farm  appraisal.  The  scientific  appraiser 
informs  us  that  the  value  of  the  land  plus  the  value 
of  the  buildings,  when  the  buildings  meet  the  "average 
adequate"  needs  of  the  farm,  is  the  value  of  the  farm; 
the  personal  element  is  important,  though,  under  a 
national  system  of  loaning  such  as  the  Federal  farm- 
loan  system,  a  matter  of  secondary  consideration.  We 
are  told  further  that  the  value  of  the  land  and  build- 
ings is  arrived  at  through  another  factor — i.e.,  the  net 


64  THE   FEDERAL   FARM-LOAN 

earning  power  of  the  farm.  Inasmuch  as  the  earning 
power  of  the  farm  is  affected  by  the  personal  element, 
we  are  again  told  that  the  personal  element  is  equal 
to  the  difference  between  a  liberal  and  a  conservative 
loan  and,  in  fact,  determines  which  it  shall  be.  The 
practical  appraiser  bases  his  valuations  upon  his  find- 
ings, which  can  be  interpreted  to  mean  experience 
plus  powers  of  observation.  While  a  valuation  placed 
upon  a  farm  by  cither  of  these  two  appraisers  may  be 
sound,  as  a  matter  of  fact  the  appraiser  who  combines 
scientific  analysis  with  good  judgment  obtained 
through  years  of  experience  is  much  better  equipped 
for  his  work  than  either  of  the  other  two  mentioned. 

In  a  discussion  of  the  method  of  arriving  at  the 
value  of  farm  property  and  the  basis  upon  which 
loans  are  made,  one  must  use  as  his  text  the  plain 
mandate  of  the  law  itself.  Section  12,  subdivision  5, 
of  the  Act,  provides  that : 

...  no  such  loan  shall  exceed  fifty  per  centum  of  the  value  of  the 
land  mortgaged  and  twenty  per  centum  of  the  value  of  the  per- 
manent insured  improvements  thereon,  said  value  to  be  ascertained 
by  appraisal,  as  provided  in  section  ten  of  this  Act.  In  making 
said  appraisal,  the  value  of  the  land  for  agricultural  purposes 
shall  be  the  basis  of  appraisal  and  the  earning  power  of  said  land 
shall  be  a  principal  factor. 

In  order  that  this  provision  of  the  law  might  be  more 

clear  to  the  loan  committee  of  the  national  farm-loan 

association,  the  Farm  Loan  Board  issued  the  following 

ruling : 

The  appraisement  of  a  farm  shall  represent  the  best  judgment  of 
the  loan  committee  as  to  the  value  of  the  land  in  question,  the 
principal  factor  being  the  productivity  of  the  land  when  used  for 
agricultural  purposes,  but  taking  also  into  consideration  the  sala- 
bility  of  the  land  and  prevailing  prices  in  the  community. 


SYSTEM   IN   OPERATION  65 

Section  10,  paragraph  3,  last  sentence,  of  the  Act, 
provides  that  "no  such  loan  shall  be  made  by  said 
bank  unless  said  written  report1  is  favorable." 

The  Farm  Loan  Act,  then,  specifically  recognizes  the 
three  traditional  factors  of  farm  appraisal — the  land, 
buildings  (improvements),  and,  to  some  extent,  the 
personal  security.  While  the  personal  element  is  a 
factor  of  considerable  importance  in  the  making  of  a 
Federal  farm  loan,  for  obvious  reasons  it  is  not  and 
never  can  be  the  controlling  factor  under  this  system 
of  making  land-mortgage  loans.  One  of  our  captains 
of  finance  is  reputed  to  have  said,  "I  would  rather 
loan  a  million  dollars  to  a  man  of  good  character  than 
upon  the  best  security  in  the  world."  While  this  is  a 
splendid  tribute  to  the  worth  of  good  character  and 
lends  emphasis  to  the  oft-repeated  statement  that 
good  character  has  become  a  favorite  ground  with 
bankers  to  lend  upon,  it  is  manifestly  impossible  in  a 
national  system  of  land-mortgage  banking  to  consider 
the  personal  element  of  equal  importance  with  the 
real  security.  Through  the  Federal  farm-loan  system 
loans  are  made  by  the  tens  of  millions  annually  and 
this  does  not  permit  of  intimate  contact  (except  within 
the  national  farm-loan  associations)  with  each  bor- 
rower. Further  than  this,  Federal  farm  loans  are  made 
for  a  period  of  a  lifetime,  during  which  the  security — 
the  farm — may  change  owners  a  great  many  times. 
The  personal  element  may,  however,  be  sufficient 
ground  for  the  rejection  of  an  application  for  a  loan, 
regardless  of  the  other  two  factors  of  the  appraisal. 
The  earning  power  of  the  land  is  specifically  recog- 

1  The  report  by  the  government  appraiser. 


66  THE   FEDERAL  FARM-LOAN 

nized  by  the  authors  of  the  Farm  Loan  Act  as  the 
fundamental  factor  in  arriving  at  its  agricultural  value. 
The  sale  value,  however,  bears  a  close  relationship  to 
the  income-producing  value  or  earning  power  of  a 
farm.  Where  this  is  not  the  case,  it  is  probable  that 
other  factors  enter  in,  such  as  climatic  or  community 
advantages.  There  are,  of  course,  instances  of  undue 
land  inflation  which  seem  to  jar  the  relationship  of  all 
values  and  lend  color  to  the  statement  that  the  sale 
value  is  only  indicative  of  the  extent  of  the  risk  in 
making  loans.  A  thorough  knowledge  of  conditions, 
however,  is  sufficient  to  discount  any  sudden  fluctua- 
tions in  land  values.1 

An  application  for  a  Federal  Farm  Loan  is  first  ap- 
praised by  the  loan  committee  of  the  national  farm- 
loan  association,  through  which  the  application  is 
made.2  This  committee  submits  a  detailed  written 
report,  not  only  upon  the  value  of  the  farm  property 
and  the  character  of  the  applicant,  but  also  regarding 
the  neighborhood  generally.  This  report,  together 
with  the  committee's  recommendations,  is  passed  on 
by  the  board  of  directors  of  the  association,  which,  in 
case  it  approves  the  same,  elects  the  applicant  to 


1  To  meet  a  situation  of  this  kind  the  Farm  Loan  Board  ruled  that 
"where  a  farm  has  sold  within  a  year  at  a  price  materially  higher 
than  the  last  previous  sale,  such  enhanced  price  was  not  to  be  taken 
into  consideration  in  making  an  appraisement";  and  that  "with  a 
few  negligible  exceptions,  not  more  than  $100  an  acre  was  to  be  loaned 
on  land  devoted  to  general  agricultural  purposes,  even  in  those  sec- 
tions where  sales  were  being  made  at  prices  ranging  from  $250  to  $400 
an  acre." 

2  An  amendment  to  Section  10  of  the  Act  authorizes  the  designation 
by  the  loan  committee  of  the  secretary-treasurer  or  some  other  person 
to  make  the  necessary  investigation  on  its  behalf,  but  the  result  of 
this  investigation  must  be  signed  by  the  members  of  the  loan  con* 
mittee. — Federal  Farm  Loan  Board,  Circular  No.  II,  p.  5. 


SYSTEM   IN  OPERATION  67 

membership  and  transmits  the  report  with  its  recom- 
mendations to  the  land  bank.  The  land  bank,  upon 
receipt  of  the  application  and  report  of  the  loan  com- 
mittee and  board  of  directors  of  the  national  farm- 
loan  association  (on  one  printed  form),  instructs  a 
land  bank  appraiser  to  inspect  the  farm  which  is  to  be 
security  for  the  loan.  After  making  exhaustive  in- 
vestigation, the  appraiser  submits  his  report  and  rec- 
ommendations to  the  land  bank.  The  land  bank  has 
then  before  it  all  the  essential  facts,  corroborated  by 
its  own  investigator,  together  with  such  collateral 
facts  as  bear  on  the  general  conditions  in  the  locality, 
like  the  average  rainfall,  character  of  the  soil,  the 
water  supply,  transportation  and  market  facilities, 
educational  and  social  advantages. 

The  method  of  arriving  at  the  value  of  farm  lands 
above  outlined  has  proved  to  be  eminently  satisfac- 
tory. While  it  may  appear  somewhat  cumbersome, 
experience  has  demonstrated  that,  once  the  machinery 
was  established,  it  operated  efficiently  and  rapidly. 
The  fact  that  the  Farm  Loan  Board  reports  but  two 
instances  where  it  has  been  necessary  to  take  proper- 
ties in  foreclosure,  is  evidence  of  the  conservative 
character  of  the  loans  that  have  been  made.1  Assum- 
ing that  the  sale  value  is  the  best  possible  criterion  by 
which  to  judge  the  value  of  the  land  for  agricultural 
purposes,  the  Farm  Loan  Board  has  had  data  compiled 
on  the  sale  of  farms  which  constituted  security  for 
Federal  farm  loans.  While  the  figures  given  do  not 
include  every  sale  made,  they  do  cover  2,178  typical 
cases  during  the  fiscal  year  that  ended  November  30, 

1  Third  AnnualJR.eport_of  the  Federal  Farm  Loan  Board,  p.  13. 


68  THE   FEDERAL   FARM-LOAN 

191 9.  These  figures  show  that  of  the  above  number 
of  sales,  the  loans  made  by  the  banks  represented 
39.98  per  cent  of  the  farm  values  as  determined  by 
the  appraisers,  and  33.41  per  cent  as  determined  by 
subsequent  cash  sales.  They  show  further  that  these 
sales  represented  an  advance  of  19.46  per  cent  over 
the  appraiser's  valuation.1 

The  above  observations  and  figures  relate,  of  course, 
to  the  system  as  a  whole,  and  do  not  indicate  the 
peculiar  difficulties  in  valuing  farm  property  in  certain 
land-bank  districts.  To  illustrate:  in  almost  every 
section  of  the  country  land  has  a  per  acre  value.  Such 
is,  however,  not  the  case  in  the  New  England  states. 
A  farm  is  bought  and  sold  as  a  unit  and  not  on  a  per 
acre  basis.  Ready  sale  does  not  depend  upon  the 
earning  power  of  the  land  or  the  number  of  acres  in 
the  unit,  but  upon  the  desirability  as  a  place  of  resi- 
dence— a  combination  of  fine  old  buildings,  fields, 
meadows,  and  babbling  brooks,  with  some  woodland, 
being  more  desirable  than  the  most  fertile  acres. 
Under  such  conditions  the  problems  of  farm  appraisal 
become  very  complex.  But  it  is  not  New  England 
alone  that  is  confronted  by  peculiar  local  conditions. 
Other  land-bank  districts  have  had  difficult  problems 
in  connection  with  appraising  lands  in  their  individual 
territory;  in  general  these  problems  have  been  solved 
through  the  co-operation  of  the  officers  of  the  land 
bank  and  the  Farm  Loan  Board. 

When  the  property  of  the  applicant  for  loan  has 
been  appraised  and  the  loan  allowed  by  the  land  bank, 
the  applicant  is  required  to  furnish  abstract  of  title 

1  Third  Annual  Report  of  the  Federal  Farm  Loan  Board,  p.  14. 


SYSTEM   IN   OPERATION  69 

and  insurance  in  such  amount  as  the  land  bank  may 
designate.  The  abstract  of  title  is  then  examined  by 
the  legal  department  of  the  land  bank,  the  necessary 
legal  papers  drawn,  executed,  and  recorded,  and  the 
loan  closed.  The  practice  of  the  land  banks  is  to  re- 
quire insurance  to  the  amount  of  60  per  cent  of  the 
value  of  the  permanent  structures  on  the  farm.1 
Though  the  bulk  of  the  insurance  furnished  is  written 
in  mutual  companies,  especially  the  small  farmers' 
mutuals,  a  considerable  amount  is  also  written  in  old- 
line  insurance  companies.  In  certain  sections  of  the 
country,  owing  to  the  remoteness  of  the  property  and 
the  undesirability  of  the  business,  it  is  impossible  for 
the  owners  to  get  insurance  at  all,  and  this  has  caused 
no  little  trouble  and  annoyance  to  the  borrower  and 
to  the  land  bank.  Together  with  other  disadvantages, 
such  as  lack  of  uniformity  of  policies  and  mortgage 
clauses,  it  has  prompted  the  Farm  Loan  Board  to  sug- 
gest that  "the  Federal  land  banks  .  .  .  write  fire- 
insurance  policies  on  permanent  structures  on  the 
farms  of  the  borrowers,"2  to  the  end  that  policies  be 

1  The  Farm  Loan  Board  has  ruled  "that,  witfi  due  discretion  and 
discrimination  in  individual  cases,  fire  insurance  should  be  required 
whether  it  is  a  factor  in  the  security  or  not.  It  is  believed  that  where 
permanent  improvements  do  not  exceed  the  value  of,  say,  #300,  they 
should  not  be  taken  into  consideration  as  a  factor  in  the  loan,  nor 
should  insurance  be  required."  The  board  expressed  itself  as  follows 
on  the  desirability  of  insurance:  "First,  that  without  insurance, 
destruction  of  the  buildings  on  a  small  farm  might  destroy  its  value 
as  a  farming  unit.  With  insurance  the  borrower  will  be  enabled  to 
replace  his  buildings  and  continue  to  live  on  the  farm,  or  the  loan 
will  be  reduced  to  a  point  of  safety  by  the  application  of  the  funds  from 
the  insurance  to  the  loan;  second,  the  system  owes  some  duty  to  the 
borrowing  farmers  in  an  educational  way,  and  the  board  feels  that 
it  is  well  enough  for  the  banks  to  encourage  the  habit  among  farmers 
of  protecting  themselves  against  loss  by  fire  or  other  elements." 

2  Second  Annual  Report  of  the  Federal  Farm  Loan  Board,  p.  13. 


70  THE  FEDERAL  FARM-LOAN 

issued  uniform  as  to  conditions,  covenants,  and  mort- 
gage clauses,  and  all  commissions  be  eliminated  and 
the  overhead  expenses  reduced.  Obviously,  certain 
advantages  could  be  derived  from  such  an  undertak- 
ing. On  the  other  hand,  there  is  the  objection  that 
must  come  to  the  mind  of  anyone;  namely,  that  the 
system  has  already  a  sufficiently  large  task  to  per- 
form, and  that  it  is  questionable  whether  the  govern- 
ment should  take  over  the  function  of  insurance  when 
individual  effort  is  capable  of  performing  it. 

The  expenses  of  the  land  banks  consist  largely  of 
the  cost  of  making  appraisements  of  land  and  ex- 
amination of  title.  To  cover  this  cost  the  land 
banks  are  authorized  under  the  Act  to  charge  ap- 
plicants for  loans  reasonable  fees  not  exceeding 
actual  cost.  These  fees  are,  however,  materially 
less  than  the  cost  of  the  service,  the  difference 
being  supplied  from  the  earnings  of  the  land  banks. 
As  has  been  stated,1  the  land  banks  are  realizing 
from  borrowers  a  rate  about  nine-tenths  of  one  per 
cent  higher  than  the  rate  which  they  are  paying 
on  their  bonds.  From  the  loans  made  which  repre- 
sent the  bank's  capital,  against  which  no  bonds  have 
been  issued,  the  land  banks  are  realizing  $l/2  Per  cent» 
The  sum  of  these  two  items  constitutes  the  gross  an- 
nual profit  on  interest  account.  From  this  must  be 
deducted  all  expenses  in  excess  of  the  sum  total  of 
the  fees  charged  to  arrive  at  the  net  profits  of  the 
land  banks. 

In  accordance  with  the  provisions  of  the  Federal 
Farm  Loan  Act,  each  land  bank  carries  to  reserve  ac- 

1  See  footnote,  p.  ;?2. 


SYSTEM  IN  OPERATION  71 

count  25  per  cent  of  its  net  earnings.1  Only  after  it 
has  done  so  may  it  declare  a  dividend  to  the  national 
farm-loan  associations  within  its  district.  The  na- 
tional farm-loan  association,  in  turn,  must  carry  10 
per  cent  of  its  net  earnings  to  reserve  account,2  after 
which  it  may  declare  a  dividend  to  its  stockholders. 
Each  borrower  is  required,  through  his  farm-loan  as- 
sociation,3 to  become  a  stockholder  to  the  extent  of 
5  per  cent  of  the  amount  of  his  loan.  He  borrows  at 
a  5^-per-cent  rate,  but  on  a  loan  of  $1,000  he  receives 
only  $950,  being  required  to  invest  $50  in  stock. 
Unless  he  receives  a  dividend  on  his  stock  he  is  paying 
$55  annually  on  a  loan  of  $950,  or  about  at  the  rate 
of  5.8  per  cent,  which,  of  course,  is  reduced  by  such 
amounts  received  as  dividends  on  his  stock.  The 
Farm  Loan  Board  calls  attention  to  the  fact  that  the 
dividends  distributed  for  the  year  ended  November 
30,  1919,  represent  only  26  per  cent  of  the  net  earnings 
of  the  land  banks.4  It  has  the  following  comment  to 
make  thereon: 

While  stockholders  in  a  co-operative  enterprise,  whose  stock- 
holding is  enforced  and  not  voluntary,  have  rights  which  should  be 
respected,  the  board  nevertheless  feels  that  the  credit  of  the  banks 
as  constant  sellers  of  securities  should  be  fortified  to  the  fullest 
possible  extent,  and  that  they  and  their  bondholders  should  be 
made  absolutely  secure  by  the  accumulation  of  a  surplus  sufficient 
to  take  care  of  any  eventuality,  however  unlikely,  which  it  is  at 
all  possible  to  anticipate. 

When  this  object  has  been  attained,  dividends  will 
undoubtedly  be  declared,  and  paid  in  a  greater  amount 

1  See  footnote,  p.  26.  2  Ibid.,  p.  26. 

8  Except  when  a  loan  is  made  through  an  agency,  in  which  case  the 
borrower  subscribes  for  a  similar  amount  of  stock  in  the  land  bank 
direct. 

4  Third  Annual  Report  of  the  Federal  Farm  Loan  Board,  p.  1 1 . 


72  THE  FEDERAL   FARM-LOAN 

than  at  present,  which,  of  course,  will  proportionately 
reduce  the  rate  of  interest  to  the  farmers  who  borrow. 

The  needs  of  agriculture  cannot  be  construed  to 
mean  the  financing  of  the  so-called  large  farmers,  for 
under  usual  conditions  they  are  not  in  urgent  need  of 
credit.  The  land  banks  are  not  designed  for  capitalis- 
tic owners  of  farm  lands,  but  for  the  great  number  of 
small  cultivators  who  are  the  backbone  of  agriculture. 
Therefore,  the  Farm  Loan  Act  requires  that  borrowers 
must  be  engaged,  or  about  to  be  engaged,  "in  the 
cultivation  of  the  farm  mortgaged."  The  interpreta- 
tion which  the  Farm  Loan  Board  has  placed  on  this 
provision  conforms  to  the  spirit  of  the  Act.  It  has 
ruled  that  farm  owners  who  operate  their  farms,  with 
or  without  hired  help,  and  who  therefore  assume  all 
the  risks  connected  with  the  business,  are  entitled  to 
loans  under  the  Act.  While  this  ruling  prohibits  the 
making  of  Federal  farm  loans  on  farm  lands  operated 
by  tenants,  whether  on  a  share  or  money  rental  basis, 
it  does  not  bar  the  tenant  who  wants  to  become  a 
farm  owner  from  securing  a  Federal  farm  loan. 

Suppose  a  tenant  farmer  has  only  $600  or  $700  and 
desires  to  purchase  a  farm.  The  farm,  we  will  say,  is 
worth  $5,000;  the  land  $4,000,  and  the  buildings 
$1,000.  On  this  valuation  the  tenant  could  secure  a 
maximum  loan  of  $2,000  on  the  land  and  $200  on  the 
buildings,  or  $2,200,  for  which  he  would  give  in  ex- 
change a  first  mortgage  on  the  farm.  The  $2,200  he 
pays  to  the  seller  as  a  first  payment,  retaining  his 
savings  for  operating  expenses.  The  seller  would  then 
take  a  second  mortgage  for  the  balance  due,  which 
he  can  do  with  perfect  safety,  giving  a  certain  period 


SYSTEM   IN   OPERATION  73 

of  years  to  pay  it  out.    A  second  mortgage  in  the  past 
has  not  been  a  very  desirable  investment,  for  the  rea- 
son that  the  holder  took  an  additional  risk  which  the 
holder  of  a  first  mortgage  did  not  take;   that  is,  if  it 
became  necessary  to  foreclose  in  order  to  protect  him- 
self, the  holder  of  the  second  mortgage  had  to  buy  out 
the  holder  of  the  first  mortgage.     In  the  transaction 
stated  above,  where  the  tenant  secures  a  Federal  farm 
loan,  the  situation  is  entirely  different.    Federal  farm 
loans  are  made  for  a  long  period  of  time,  on  the  amor- 
tization plan,  and  at  a  low  rate  of  interest.    In  other 
words,  such  loans  are  made  with  a  view  to  keeping  the 
man  on  the  farm.    In  the  event,  however,  he  defaults 
and  it  becomes  necessary  for  the  land  bank  to  fore- 
close, the  second  mortgagee,  acquiring  title  by  fore- 
closure of  his  mortgage  or  by  quit-claim  deed  from  the 
borrower,  can  take  over  the  first  mortgage,  being  only 
required  to  pay  the  exceedingly  small  amortization 
installments  as  they  come  due,  and  not  the  entire  loan. 
He  may,  of  course,  take  the  $2,200  paid  to  him  by 
the  purchaser,  or  so  much  thereof  as  is  necessary,  and 
pay  it  back  to  the  land  bank  and  get  the  farm  again 
free  from  incumbrance.    The  popular  idea  of  a  second 
mortgage  must  therefore  be  revised  when  considering  it 
in  connection  with  a  Federal  Farm  Loan.    A  number  of 
local  bankers,  acting  as  secretary-treasurers  of  national 
farm-loan  associations,  have  adopted  with  marked  suc- 
cess the  above  plan  of  assisting  tenant  farmers  who  are 
worthy  and  who  desire  to  become  farm  owners. 

That  the  land  banks  have  operated  with  the  pur- 
pose of  rendering  service  to  agriculture,  rather  than 
of  building  up  enormous  "dollars  and  cents"  totals, 


74  THE   FEDERAL  FARM-LOAN 

is  reflected  in  the  consolidated  statement  of  financial 
condition,  issued  by  the  Federal  Farm  Loan  Board.1 
Since  organization,  the  statement  discloses,  259,349 
individuals  have  applied  for  loans  aggregating  $757,- 
344,907.  Of  the  amount  applied  for  but  $367,834,014 
have  been  loaned  to  131,035  farmers.  The  percentage 
of  shrinkage  in  the  number  and  amount  of  applica- 
tions is  approximately  50  per  cent,  or  a  ratio  of  one 
loan  closed  to  two  applied  for.  The  reasons  for  this 
shrinkage  are  numerous.  During  the  early  organiza- 
tion of  the  system  it  was  found  tha't  an  impression 
prevailed  in  many  sections  of  the  United  States  that 
the  funds  loaned  were  government  funds,2  which  would 
be  freely  distributed  without  a  business-like  considera- 
tion of  the  security  offered.  The  disillusionment  of 
those  individuals  who  submitted  applications  under 
this  mistaken  idea  was  speedy,  for  it  soon  became 
known  that  the  provisions  of  the  law  were  being  strictly 
adhered  to  and  that  no  loans  would  be  made  on  worth- 
less security  or  for  speculative  purposes.  There  were 
also  individuals  who  submitted  applications  for  loans 
with  no  thought  of  completing  them,  but  merely  to 
secure  a  government  valuation  of  their  property.  This 
practice  brought  about  a  ruling  by  most  of  the  land 
banks  requiring  a  fee  of  five  dollars  be  submitted  with 
each  application.  This  fee  was  credited  to  the  appli- 
cant in  the  event  the  security  offered  was  appraised; 
if  the  application  was  withdrawn  before  appraisal,  the 
fee  was  returned  to  the  applicant. 

1  At  the  close  of  business,  October  31,  1920. 

2  Federal  farm  loans  are  not  in  any  sense  government  loans.  The 
funds  from  which  they  are  made  are  created  by  the  sale  of  Federal 
Farm  Loan  Bonds. 


SYSTEM   IN  OPERATION  75 

The  granting  of  a  Federal  farm  loan  is  controlled  at 
four  points  in  the  process  of  making  the  loan.  First, 
loans  may  be  rejected  by  the  farm-loan  association; 
second,  by  the  land-bank  appraiser;  third,  by  the 
Federal  land  bank;  and  fourth,  by  the  Farm  Loan 
Board.  All  canceled,  withdrawn,  or  rejected  loans 
come  within  one  of  these  classifications.  In  those 
sections  of  the  country  where  land  values  are  high, 
the  $10,000  limitation  fixed  by  law  has  automatically 
caused  the  rejection  of  a  great  many  loans.  Farms 
that  are  rented,  unimproved  land,  and  land  which  is 
not  dependable  farming  land  have  not  been  accepted 
as  security  for  loans.  A  great  number  of  loans  have 
been  withdrawn  voluntarily  by  the  applicant  for 
various  reasons.  For  instance,  a  farmer  makes  applica- 
tion in  the  month  of  May  for  closing  on  the  first  day 
of  August  of  the  same  year.  In  July  he  finds  that  he 
will  likely  harvest  a  good  crop  and  receive  good  prices. 
As  a  consequence  he  feels  that  he  will  be  able  to  get 
along  without  making  a  loan,  and  therefore  with- 
draws his  application.  In  many  instances  the  appli- 
cant has  been  unable  to  furnish  an  abstract  disclosing 
a  merchantable  title  to  the  land  upon  which  he  desires 
a  loan.  As  a  consequence,  the  land  banks  have  had 
no  alternative  but  to  reject  his  application.  It  mani- 
festly would  be  of  little  value  to  enumerate  further 
the  reasons  for  the  shrinkage  referred  to  above,  for 
every  application  canceled,  withdrawn,  or  rejected  is 
governed  by  a  different  set  of  facts  and  must  be  con- 
sidered by  the  proper  officials  in  the  light  of  all  the 
circumstances  affecting   the  case.     This  emphasizes 

the  fact  that  the  making  of  loans  through  the  Federal 
6 


76  THE   FEDERAL  FARM-LOAN 

farm-loan  system,  as  through  any  other  loaning  in- 
stitution or  system,  is  not  automatic  or  impersonal, 
but  depends  upon  the  ability,  efficiency,  and  experience 
of  those  officials  and  employees  within  the  system  in 
whom  is  lodged  the  responsibility  of  valuing  the 
security  and  allowing  loans. 

The  best  possible  criterion  by  which  to  judge  the 
standard  of  service  the  farm-loan  system  has  rendered 
since  its  establishment  is  the  number  of  farmers  it 
has  served.  Though  loans  may  be  made  to  the  amount 
of  $10,000,  the  figures  quoted  above  indicate  that  no 
attempt  has  been  made  to  "get  big  loans"  to  swell 
the  totals  of  the  system.  On  the  contrary,  the  average 
loan  is  about  $2,800.  In  those  land-bank  districts 
which  embrace  the  older  regions  where  land  values 
are  comparatively  high,  the  average  loan  is,  of  course, 
larger.  In  other  districts,  in  which  the  greater  part  of 
the  loaning  area  is  composed  of  undeveloped  sections, 
the  average  is,  naturally,  lower. 

While  the  system  of  land-mortgage  banking  which 
prevailed  prior  to  the  establishment  of  the  Federal 
farm-loan  system  rendered  a  distinct  service  to  the 
agriculture  of  this  country,  agriculture  had,  as  a  rule, 
not  only  paid  too  heavy  toll  for  this  service,  but  it 
had  not  been  granted  under  the  most  favorable  terms 
and  conditions.  The  primary  purpose  of  the  Federal 
Farm  Loan  Act  is  expressed  in  the  first  clause  of  its 
preamble,  "To  provide  capital  for  agricultural  devel- 
opment." If  the  operation  of  the  machinery  estab- 
lished in  pursuance  to  the  provisions  of  the  Act  has 
fallen  short  of  this  accomplishment,  it  should  be  dis- 
placed by  one  which  comprehends  it.     If  the  farm- 


SYSTEM   IN   OPERATION  77 

loan  system  has  demonstrated  its  ability,  within  the 
short  period  since  its  establishment,  to  meet  this  need, 
then  it  should  receive  the  heartiest  co-operation  from 
those  individuals  and  institutions  who  are  in  a  posi- 
tion to  assist  in  its  work. 


VI 

CO-OPERATIVE    FEATURES   OF   THE    FARM-LOAN    SYSTEM 

THE  Federal  farm-loan  system  is  not  an  adaptation, 
as  is  popularly  supposed,  of  rural-credit  systems 
established  in  foreign  countries.  In  fact,  its  frame- 
work in  no  way  resembles  that  of  any  other  system, 
although  it  embodies  some  of  the  more  important 
principles  of  the  co-operative  land-mortgage  credit 
associations  (Landschaften)  of  Germany.  The  farm- 
loan  system  as  established  is  designed  to  meet  Amer- 
ican conditions  and  needs,  with  a  view  to  rendering 
service  to  the  country  at  large  and  not  to  any  particu- 
lar state  or  section.  In  European  countries  rural- 
credit  systems  were  established  in  a  small  way  for  the 
benefit  either  of  the  very  poor  or  of  the  very  rich,  and 
only  through  evolution  and  development  have  their 
services  been  extended  and  made  available  to  farmers 
in  general. 

While  the  structure  of  the  farm-loan  system  in  no 
way  resembles  that  of  foreign  co-operative  land-mort- 
gage credit  systems,  it  rests  upon  the  same  foundation. 
The  fundamental  principle  upon  which  all  are  based 
is  co-operation  of  borrowers — that  is,  instead  of  the 
farmer-borrowers  receiving  their  loans  independently 
and  individually,  they  organize,  pool  their  securities, 
and  thus  obtain  the  most  favorable  terms.    This  prin- 


SYSTEM   IN   OPERATION  79 

ciple  is  of  prime  importance  to  the  establishment  and 
development  of  a  land-mortgage  credit  system  in  the 
United  States.  It  was  impossible  for  the  farmers  to 
obtain  credit  in  accordance  with  their  needs  through 
independent  or  individual  action.  By  associating 
themselves  for  the  purpose  of  improving  their  credit 
facilities,  they  could  place  on  the  market  a  superior 
security.  For  this  reason  the  national  farm-loan  asso- 
ciation was  made  an  integral  part  of  the  farm-loan 
system. 

The  national  farm-loan  association  is  a  corporation, 
chartered  by  the  Farm  Loan  Board,  having  perpetual 
existence  unless,  of  course,  it  liquidates  or  consolidates 
with  another  association.  It  is  not  so  much  an  aggre- 
gation of  capital,  though  it  has  capital  stock,  as  an 
association  of  individuals  united  for  the  purpose  of 
improving  their  credit  facilities. 

The  farm-loan  association  is  self-governing  as  re- 
gards its  local  affairs.  The  supreme  authority  is 
lodged  in  its  board  of  directors,  elected  by  the  mem- 
bers of  the  association.  This  board  in  turn  elects 
officers,  and  designates  a  person,  who  need  not  be 
a  member  of  the  association,  to  act  as  secretary- 
treasurer.  The  secretary-treasurer,  as  has  been  pre- 
viously stated,  carries  on  the  routine  and  clerical  work 
of  the  association  and  is  vested  with  authority  to  con- 
duct its  current  business  affairs. 

New  members  are  admitted  only  upon  a  favorable 
vote  of  a  majority  of  the  board  of  directors.  The 
association  then,  through  its  board  of  directors,  de- 
termines in  the  first  instance  the  qualifications  of  the 
applicant.    Our  first  thought  is  that  this  power  would 


8o  THE   FEDERAL   FARM-LOAN 

be  abused,  but  experience  has  shown  that  no  deserving 
applicant  has  been  refused  consideration,  while  there 
are  many  instances  where  ne'er-do-wells  have  been 
very  pointedly  informed  that  the  association  would  not 
become  an  indorser  of  their  obligations  until  their 
methods  of  farming  showed  improvement.  This  fea- 
ture, judiciously  administered,  will  undoubtedly  prove 
a  stimulant  to  improvement  and  go  far  toward  mak- 
ing membership  in  a  national  farm-loan  association  a 
badge  of  honor. 

The  Federal  farm-loan  system  was  designed  for  the 
bona  fide  farmer  and  not  for  the  speculator.  In  order 
that  the  farmer  may  reap  the  real  benefits  of  the  farm- 
loan  system,  the  Farm  Loan  Act  provides  that  the 
capital  stock  be  subscribed  by  the  farmers  who  borrow 
and  not  by  the  outside  investing  public.  If  the  act  had 
provided  for  public  subscriptions  of  stock  the  benefits 
would  have  gone  to  the  subscriber  and  not  to  the  farm- 
ers who  borrow.  It  would  have  been  of  advantage  to 
the  outside  public  to  increase  the  rate  charged  the 
borrower  to  "as  much  as  the  traffic  would  bear,"  for 
then  their  profits  would  have  been  greater.  It  was 
just  such  a  policy  of  rate-setting  that  the  Farm  Loan 
Act  was  designed  to  prevent  and  does  prevent.  The 
farmers  who  borrow  through  the  farm-loan  system, 
and  thereby  become  stockholders,  are  not  so  much 
interested  in  profits  from  their  stock  as  they  are  in 
securing  a  loan  at  a  low  rate  of  interest.  This  can  be 
assured  only  if  they  own  the  stock,  because  they  can 
then  dictate  what  the  interest  rate  shall  be,  subject 
only  to  the  rate  at  which  farm-loan  bonds  could  be 
marketed  (allowing  a  small  per  cent  above  this  rate 


SYSTEM    IN   OPERATION  81 

necessary  to  defray  the  expenses  incident  to  operating 
the  farm-loan  system).  Any  surplus  is  returned  to  the 
farmer-borrowers  in  the  form  of  dividends.  Under 
this  plan  they  secure  their  loans  at  absolute  cost. 

As  has  been  stated,  the  farm-loan  association  is 
primarily  an  association  of  persons  and  not  a  combina- 
tion of  capital.  To  insure  against  a  few  of  the  larger 
borrowers  dominating  the  affairs  of  the  association, 
through  control  of  its  capital  stock,  the  Farm  Loan 
Act  provides  that  a  member  shall  have  one  vote  for 
each  share  of  stock  held  by  him,  but  in  no  case  can 
a  member  cast  more  than  twenty  votes.  In  the  man- 
agement of  the  association,  therefore,  majority  rule 
prevails,  for  a  member  borrowing  $2,000  casts  the 
same  number  of  votes  as  does  the  member  who  has 
secured  a  $10,000  loan.  The  members  of  the  farm- 
loan  association  have  at  all  times  an  influence  in  the 
management  of  its  affairs  in  accordance  with  the  co- 
operative spirit  which  permeates  the  farm-loan  system. 

The  Farm  Loan  Act  provides  for  a  double  liability 
as  the  extent  to  which  members  of  a  farm-loan  asso- 
ciation obligate  themselves  in  case  of  default,  though 
in  European  countries  unlimited  liability  has  been  an 
accepted  principle  of  co-operative  credit.  The  term 
double  liability  was  familiar  to  the  people  of  the  United 
States,  for  the  stock  in  national  banks  and  in  most 
state  banks,  as  well  as  many  other  forms  of  corpora- 
tions, carries  this  obligation,  which  undoubtedly  ac- 
counts for  its  inclusion  in  the  Farm  Loan  Act.  This 
feature  is  in  its  nature  a  safety  device,  and  an  addi- 
tional assurance  to  the  investor.  Before  the  double- 
liability  provision  can  be  resorted  to,  the  land  itself 


82  THE   FEDERAL  FARM-LOAN 

must  have  depreciated  over  50  per  cent,  the  buildings 
be  practically  destroyed,  and  the  association's  funds 
exhausted.  This  eventuality  is  exceedingly  remote. 
It  must  also  be  borne  in  mind  that  Federal  farm 
loans  are  all  made  on  the  amortization  plan,  whereby 
the  principal  is  being  reduced  annually  or  semi- 
annually, thus  increasing  the  margin  of  security  and 
reducing  the  land  bank's  equity  every  six  or  twelve 
months.  Because  of  the  conservative  method  of  mak- 
ing loans,  considered  with  the  factors  stated  above,  it 
is  exceedingly  unlikely  that  the  liability  feature  will 
ever  become  operative.  It  is  of  value,  of  course,  as  an 
additional  assurance  to  the  bond  buyers  and  as  a 
means  of  insuring  a  continued  interest  in  the  affairs 
of  the  association  on  the  part  of  those  members  who 
might  otherwise  feel  that  they  had  no  further  concern 
with  the  association  or  its  affairs,  inasmuch  as  their 
own  needs  had  been  cared  for. 

Among  the  enumerated  powers  of  the  national  farm- 
loan  association  is  the  authority  to  issue  certificates, 
bearing  interest  at  not  over  4  per  cent  annually  and 
running  for  not  longer  than  one  year,  against  a  deposit 
of  current  funds.  These  certificates  are  convertible 
into  Federal  farm-loan  bonds  when  presented  to  the 
Federal  land  bank  of  the  district  in  amounts  of  $25,  or 
any  multiple  thereof.  This  provision  of  the  Farm 
Loan  Act  was  intended  to  encourage  saving  and  the 
sale  of  farm-loan  bonds  in  rural  districts.  It  is  pat- 
terned somewhat  after  the  method  employed  by  cer- 
tain co-operative  credit  institutions  in  European  coun- 
tries designed  to  raise  funds  with  which  to  make 
loans.      In   fact,   many   European  institutions  make 


SYSTEM   IN  OPERATION  83 

loans  solely  from  funds  deposited  with  them,  and  do 
not  issue  debentures  or  bonds  at  all.  This  method  of 
financing  was  possible  by  reason  of  their  small  begin- 
nings and  steady  growth  over  a  long  period  of  years. 
A  land-mortgage  system,  however,  of  such  proportions 
as  to  meet  the  needs  of  American  agriculture,  could 
not  be  financed  in  this  manner  without  a  disturbance 
of  the  already  well-established  and  splendid  system  of 
savings  banks  and  trust  companies.  It  is  doubtful 
whether  any  legislation  could  divert  the  deposits  of 
these  institutions  in  sufficient  amounts  to  meet  the 
requirements  of  a  national  land-mortgage  system. 
While  this  feature  of  the  system  has  not  been  called 
into  operation,  it  is  hoped  that  when  money  conditions 
become  more  steady,  it  may  be  a  means  whereby  the 
farm  hand  and  the  tenant  farmer  may  deposit  their 
savings  until  they  have  enough  to  purchase  an  equity 
in  a  farm  and  secure  a  Federal  farm  loan  thereon.  The 
development  of  this  provision  of  the  Farm  Loan  Act 
may  do  much  toward  solving  the  tenant  problem  and 
eliminating  absentee  landlordism. 

While  the  Farm  Loan  Act  does  not  permit  the  na- 
tional farm-loan  association  as  such  to  function  for  any 
other  purpose  than  those  specifically  provided  by  law, 
there  is  no  reason,  the  Farm  Loan  Board  points  out, 

.  .  .  why  the  usefulness  of  the  association  should  stop  with  bor- 
rowing merely  because  their  legal  powers  stop  there.  There  is  no 
reason  why  the  farmers  united  in  any  national  farm-loan  association 
should  not  also  associate  themselves  together  for  buying,  for  selling, 
for  personal  credit  at  the  bank,  or  any  other  co-operative  purpose. 

This  point  was  further  emphasized  by  the  former 
commissioner  of  the  Farm  Loan  Board  when  he  said : 


84  THE   FEDERAL   FARM-LOAN 

.  .  .  the  real  object  of  Congress  in  providing  the  association  fea- 
ture was  to  show  the  farmers  the  benefit  of  co-operation.  When 
they  saw  what  co-operating  in  borrowing  had  done  for  them, 
Congress  believed  that  the  farmers  would  tend  to  co-operate  in  all 
kinds  of  directions.1 

The  co-operative  idea  embodied  in  a  national  farm- 
loan  association  extends  through  the  entire  farm-loan 
system.  The  farmer  who  borrows  in  the  first  instance 
subscribes  to  stock  in  the  local  association,  and  the 
association  in  turn  subscribes  an  equal  amount  of 
stock  in  the  land  bank.  As  the  Farm  Loan  Act  pro- 
vides, the  land  banks  will  ultimately  be  owned  co- 
operatively by  the  national  farm-loan  associations  of 
the  land-bank  district,  such  associations  being  them- 
selves co-operatively  owned  by  their  members.  The 
co-operative  feature  of  the  system  extends  even  fur- 
ther, for  the  Farm  Loan  Act  provides  that  land  banks 
shall  be  liable  for  the  obligations  of  every  other  land 
bank  in  proportion  to  the  amount  of  their  resources. 
It  is  therefore  manifest  that  the  system  is  co-operative 
from  the  ground  up,  so  constructed  in  accordance 
with  American  ideas  and  ideals  as  to  insure  steady 
growth  and  sound  development. 

The  rapid  forming  of  associations  in  every  land- 
bank  district  dispelled  the  prevailing  opinion  that  the 
farmers  of  this  country  would  not  co-operate  for  the 
purpose  of  improving  their  credit  facilities.  The  con- 
tention was  that  in  so  far  as  American  farmers  were 
concerned  there  was  no  "tie  that  binds."  This  coun- 
try, it  was  said,  was  the  melting  pot  of  the  countries  of 
the  world;   consequently  there  were  no  bonds  of  an- 

1  Address  by  Commissioner  George  W.  Norris,  delivered  at  Lansing, 
Michigan,  October  14,  1919. 


SYSTEM   IN   OPERATION  85 

cestry,  religion,  ideas,  and  habits,  such  as  made  pos- 
sible the  great  co-operative  credit  systems  in  European 
countries.  Moreover,  we  had  no  farm  communities, 
so  it  was  said.  On  account  of  the  relatively  large  area 
of  farms,  our  farmers  lived  in  solitary  houses.  These 
factors,  it  was  contended,  were  not  conducive  to  co- 
operative effort,  no  matter  how  desirable  it  might  be. 

After  the  system  was  launched,  they  were  found  to 
be  theoretical  obstacles  only.  The  American  farmer 
took  readily  to  co-operative  enterprise  when  it  was 
demonstrated  to  be  to  his  interest  to  do  so.  There 
were  problems,  however,  which  had  to  be  overcome. 
The  attempts  in  certain  land-bank  districts  to  form 
farm-loan  associations  along  national,  religious,  or 
racial  lines  were  discouraged,  except  in  those  localities 
where  they  did  not  interfere  with  the  service  the  land 
banks  had  to  render.  Among  the  problems  which  the 
Farm  Loan  Board  was  called  upon  to  solve  can  be 
mentioned  the  most  desirable  size  for  an  association, 
the  number  of  members,  amount  of  loans,  and  extent 
of  territory  covered;  the  compensation  of  the  secre- 
tary-treasurer, and  the  members  of  the  loan  com- 
mittee ;  the  amount  and  terms  of  surety  bonds ;  over- 
lapping of  territory;  the  furnishing  of  abstracts  of 
title;  and  the  propriety  of  proposed  charges  for  ap- 
praisal or  determination  of  title.  These  problems 
involved  questions  of  policy  which  the  Farm  Loan 
Board  solved  by  adopting  "such  a  ruling  as  would  best 
carry  out  the  purposes  we  believed  that  the  Congress 
had  in  view  in  the  passage  of  the  Act." 

During  the  first  year  of  operation,  1,839  national 
farm-loan  associations  were  organized  in  the  United 


86  THE   FEDERAL   FARM-LOAN 

States.1  The  following  year  this  number  was  increased 
to  3,439,2  and  at  the  end  of  the  third  year  4,018  farm- 
loan  associations  had  been  organized  in  all  of  the  land- 
bank  districts.3  Of  the  total  number  of  farm-loan 
associations  organized  throughout  the  United  States, 
128  charters  have  been  canceled,  by  consolidation  or 
otherwise,  leaving  3,890  associations  in  actual  opera- 
tion.4 On  December  31,  1920,  there  were  3,966  asso- 
ciations, which  indicates  that  the  organization  of  new 
associations  is  practically  at  a  standstill.5  This  is  not 
due  to  any  lack  of  interest  upon  the  part  of  the  farmer 
borrower.  As  the  reader  will  recall,  the  number  of 
associations  is  now  in  excess  of  the  number  of  coun- 
ties in  the  United  States.  It  follows  that  there  is  very 
little  agricultural  territory  not  already  included  within 
the  territory  of  an  existing  association.  The  number 
of  associations,  therefore,  will  practically  remain  con- 
stant, and  those  already  established  increase  their  size 
and  membership. 

In  certain  localities  the  forming  of  national  farm- 
loan  associations  was  undertaken  by  individuals  whose 
object  was  to  secure  "easy  money."  They  had  no 
intention  of  building  up  permanent  organizations  in 
order  that  their  benefits  could  be  extended  to  their 
neighbors  in  the  future.  Fortunately,  these  attempts 
were  not  many.  They  emphasize,  however,  the  im- 
portance of  the  personal  factor  in  the  forming  of  an 
association.    Good,  substantial  farmers  having  formed 

1  First  Annual  Report  of  the  Federal  Farm  Loan  Board,  p.  30. 
*  Second  Annual  Report  of  the  Federal  Farm  Loan  Board,  p.  19. 
8  Third  Annual  Report  of  the  Federal  Farm  Loan  Board,  p.  20. 
♦On  November  30,   1919.    Third  Annual  Report  of  the  Federal 
Farm  Loan  Board,  p.  20. 
»  Fourth  Annual  Report  of  the  Federal  Farm  Loan  Board,  p.  5. 


SYSTEM   IN  OPERATION  87 

an  association  were  of  course  loath  to  admit  shiftless 
and  unworthy  farmers  to  membership.  There  were 
localities,  however,  where  the  shiftless  and  unworthy- 
farmers  took  things  into  their  own  hands  and  organized 
for  the  purpose  of  "getting  some  of  this  easy  money." 
In  one  of  the  middle  Northern  states,  the  organization 
of  two  national  farm-loan  associations  was  begun  in 
the  same  county.  The  first  association  had  twenty-two 
charter  members,  whose  applications  for  loans  aggre- 
gated $45,000.  The  appraiser's  valuations  of  the 
security  offered  placed  the  value  of  the  land  at  $49,755 
and  the  buildings  at  $14,375,  which  of  course  indicates 
that  the  amounts  applied  for  were  unduly  high. 
Eighteen  of  the  applications  were  approved  by  the 
land  bank  in  an  amount  aggregating  $26,400,  approxi- 
mately one  half  of  the  amount  applied  for.  Only  three 
applications  were  granted  in  full.  As  a  result  this 
association  was  never  completed.  The  second  associa- 
tion began  with  twenty-seven  charter  members,  whose 
applications  totaled  $54,950.  The  land-bank  appraiser 
valued  the  security  offered  as  follows:  the  land, 
$84,680,  and  the  buildings,  $44,510.  Twenty-three  of 
the  applications  were  approved  in  the  amount  applied 
for  and  the  association  formed.  It  is  clear  that  the 
second  association  represented  a  higher  type  of  farmers 
than  did  the  first  association.  Those  farmers,  how- 
ever, in  the  first  association  who  made  bona  fide  ap- 
plication for  Federal  farm  loans  were  taken  care  of 
by  an  arrangement  whereby  they  were  transferred  to 
the  second  association  through  consolidation  of  the 
two  associations.  Thus,  while  the  shiftless  were  ex- 
cluded from  membership,  the  benefits  of  the  Farm 


88  THE   FEDERAL   FARM-LOAN 

Loan  Act  were  not  denied  to  any  worthy  farmer  in  that 
locality. 

In  those  sections  of  the  country  where  the  lack  of 
farm  credit  was  not  a  decided  handicap,  the  organiza- 
tion of  national  farm-loan  associations  presented  a 
problem  quite  different  from  that  in  the  newer  and 
less-developed  sections.  It  was  often  difficult  "to  get 
the  association  started"  because  of  the  desire  of  the 
farmers  not  to  "antagonize"  the  local  bankers.  While 
there  was  ground  for  this  feeling  in  some  localities,  in 
most  districts  it  was  far  from  being  justified.  The 
experience  of  a  certain  banker  in  the  seventh  land-bank 
district  is  typical.  This  banker  in  organizing  his  bank 
had  taken  in  as  stockholders  some  of  the  leading  farm 
ers  in  his  community.  He  established  his  bank  on 
the  principle  that  it  had  a  service  to  perform  not  only 
to  its  stockholders  and  depositors,  but  to  the  com- 
munity as  a  whole.  In  the  early  part  of  191 7,  several 
farmers,  who  were  customers  of  the  bank,  made  in- 
quiry in  regard  to  the  Federal  farm-loan  system.  The 
banker  stated  frankly  the  nature  of  a  Federal  farm 
loan  and  the  service  the  land  banks  could  render.  He 
suggested  that  they  make  an  effort  to  secure  a  suffi- 
cient number  of  farmers  to  form  an  association,  if  they 
were  interested  in  securing  the  long-term,  amortized 
loan  which  the  land  banks  could  make  and  which  he, 
as  a  commercial  banker,  could  not  make.  The  neces- 
sary number  of  farmers  was  found  and  the  association 
organized. 

Up  to  this  time  [the  banker  stated,  in  a  letter  to  the  author] 
the  officers  of  this  bank  contended  that  the  association  should  be 
handled  by  the  farmers  themselves  and  that  it  should  not  be 


SYSTEM   IN   OPERATION  89 

handled  through  the  bank.  At  the  earnest  request  of  the  directors 
of  the  association,  however,  I  accepted  the  position  as  secretary- 
treasurer.  I  had  to  do  most  of  the  work  in  the  evening  in  order 
not  to  interfere  with  the  work  at  the  bank.  Applications  for  loans 
came  in  so  fast,  however,  that  it  was  impossible  to  continue  the 
work  as  a  side  line.  I  then  got  permission  from  the  directors  of 
the  bank  to  merge  the  work  as  secretary-treasurer  with  that  of  the 
bank.  This  proved  to  be  one  of  the  best  things  that  ever  hap- 
pened to  both  the  bank  and  the  association.  It  brought  business 
to  the  bank  from  all  parts  of  the  county,  for  in  making  a  Federal 
farm  loan  there  usually  was  involved  the  closing  up  of  a  land  deal 
or  the  transfer  from  one  member  of  the  family  to  another.  Thus 
thousands  of  dollars  were  handled  and  the  bank  was  in  a  position 
to  secure  time  deposits  for  at  least  a  part  of  the  proceeds.  The 
association  benefited  because  every  inquiry  was  given  the  same 
attention  as  the  regular  bank  work  and  the  applicant  was  fully 
informed  as  to  the  operation  of  the  system  as  compared  with  the 
old  method  of  mortgage  banking.  Each  borrower  became  a 
booster  not  only  for  the  association,  but  for  the  bank,  and  both 
profited  thereby.  Of  course  we  realize  that  if  it  were  not  for  this 
fact  it  would  not  be  possible  for  the  bank  to  carry  on  the  work  of 
the  association  at  a  profit  with  the  small  salary  paid  the  secretary- 
treasurer.  We  feel,  however,  that  we  have  been  repaid  in  added 
patronage  and  the  good  will  of  our  farmers. 

The  banker  realized  the  fact  that  the  farmers  in  his 
community  must  prosper  before  he,  or  his  bank,  could 
prosper.  He  had  in  mind  the  real  importance  of  the 
country  to  the  town,  the  interlocking  of  interests 
and  consequent  need  of  co-operation  if  both  were  to 
progress. 

The  most  important  official  of  the  association  is 
the  secretary-treasurer.  The  success  of  the  associa- 
tion depends  largely  upon  the  kind  of  man  who  occu- 
pies that  office.  While  the  secretary-treasurer  should 
be  tactful,  it  does  not  necessarily  follow  that  he  should 
be  a  "good  fellow"  and  allow  irregularities  to  enter 
in    to   accommodate    some   member   or   prospective 


9o  THE   FEDERAL   FARM-LOAN 

member.  He  should  have  a  knowledge  of  business 
affairs  and  conduct  his  office  in  a  business-like  manner. 
This  does  not  necessarily  mean  that  a  secretary- 
treasurer  should  be  a  business  man  or  a  banker.  The 
Farm  Loan  Board  has  compiled  a  report  showing  the 
occupation  of  secretary-treasurers  as  follows:  43  per 
cent  of  the  farm-loan  associations  have  as  secretary- 
treasurers  farmers;  30  per  cent  local  business  men; 
16  per  cent  local  bankers;  9  per  cent  lawyers;  and  2 
per  cent  men  of  other  occupations.1  The  advantage  of 
employing  some  one  residing  in  the  village  or  town 
where  the  association  has  its  headquarters  is  appar- 
ent. The  farmer  member,  having  business  to  trans- 
act with  the  association,  can  do  so  when  he  comes  to 
town  on  other  errands.  Such  an  arrangement  facili- 
tates the  business  of  the  association  in  that  the  mail 
from  the  land  bank,  the  register  of  deeds,  and  others, 
is  received,  and  can  be  attended  to  the  same  day. 

An  arrangement  whereby  the  local  bankers  act  as 
secretary-treasurers  has  been  eminently  satisfactory 
to  many  associations  in  some  of  the  land-bank  dis- 
tricts. This  is  especially  true  in  the  seventh  Federal 
land-bank  district.  In  two  of  the  states  of  that  dis- 
trict approximately  50  per  cent  of  the  associations 
have  selected  as  their  secretary-treasurer  the  local 
banker.  In  these  states  the  bankers  have  indicated  a 
desire  to  assist  the  farmers  in  perfecting  their  asso- 
ciations, and  place  at  their  disposal  the  auxiliary 
service  which  the  local  banker  can  render  in  closing 
a  Federal  farm  loan.  This  attitude  on  the  part  of  the 
local  banker  has  brought  about  a  closer  relationship 

x  Second  Annual  Report  of  the  Federal  Farm  Loan  Board,  p.  8. 


SYSTEM   IN  OPERATION  91 

and  co-operation  between  town  and  country.  What 
has  been  done  in  these  two  states  has  been  done, 
though  perhaps  to  a  lesser  degree,  by  many  associa- 
tions in  other  districts. 

The  long-term  credit  needs  of  the  farmer  have  been 
cared  for  through  the  Federal  farm-loan  system,  and 
the  problem  of  supplying  the  short-term  or  seasonal 
requirements  of  the  farmer  is  left  to  the  country 
banker.  This  is  as  it  should  be,  for  the  local  banker 
is  in  no  way  equipped  to  make  long-term  loans.  The 
money  which  he  has  on  deposit  is  subject  to  with- 
drawal on  demand  or  within  a  comparatively  short 
time.  Consequently  he  cannot  tie  up  his  money  for 
a  long  period  of  time,  but  must  so  invest  it  that  a 
steady  stream  of  money  flows  into  his  bank  to  care 
for  the  demands  made  upon  him.  It  is  evident  that 
great  good  will  result  from  honest  and  active  co- 
operation between  the  local  bank  and  the  farm-loan 
association.  The  co-operative  spirit  which  permeates 
the  Federal  farm-loan  system  is  therefore  not  con- 
fined to  its  own  limits,  but  extends  beyond,  and  in- 
vites individuals  and  institutions  outside  the  organ- 
ization to  assist  in  placing  our  basic  industry — agri- 
culture— on  a  sound  financial  basis. 

7 


VII 

SERVICE    ASIDE    FROM    MAKING    LOANS 

'T'HE  duties  imposed  by  law  upon  those  who  are  in 
*  charge  of  the  Federal  farm-loan  system  involve 
principally  the  lending  and  collecting  of  money.  The 
members  of  the  Farm  Loan  Board  have  not,  however, 
confined  themselves  to  a  strict  interpretation  of  the 
Farm  Loan  Act,  but  have  given  it  a  broader  inter- 
pretation in  accordance  with  the  spirit  of  co-operation 
which  it  embodies.  This  is  evidenced  by  the  service 
the  system  has  rendered,  aside  from  making  loans. 

Certain  services  to  the  government,  in  addition  to 
the  making  of  loans  to  farmers,  were,  to  be  sure,  en- 
joined by  the  Act  upon  the  Federal  land  banks.  The 
concluding  clause  of  the  preamble  states  that  the 
system  is  intended  "to  furnish  a  market  for  United 
States  bonds,  to  create  government  depositaries  and 
financial  agents  of  the  United  States,  and  for  other 
purposes."  The  provisions  of  the  law  for  performing 
these  functions  have  been  called  into  active  operation 
and  effectively  carried  out. 

During  the  fall  of  191 8,  the  Federal  land  banks  of 
Wichita,  Spokane,  and  St.  Paul  were  designated  as 
financial  agents  of  the  United  States,  for  the  making 
of  seed-grain  loans  to  farmers  in  drought-stricken 
areas,  the  President  of  the  United  States  having,  at 


SYSTEM   IN   OPERATION  93 

the  request  of  the  Secretary  of  Agriculture,  set  aside 
$5,000,000  for  that  purpose  from  his  $100,000,000 
war  fund.  This  task  involved  the  taking  from  each 
borrower  of  a  note  and  mortgage  upon  the  crop 
planted.  In  the  discharge  of  this  task  loans  were 
made  by  the  land  bank  of  Wichita  to  the  number  of 
4,402  in  the  amount  of  $1,892,345;  by  the  land  bank 
of  Spokane  to  the  number  of  6,149  in  the  amount  of 
$1,949,934;  and  by  the  land  bank  of  St.  Paul  to  the 
number  of  1,137  m  the  amount  of  $358,559.  This 
service  was  rendered  to  the  government  without 
charge,  except  the  additional  clerical  hire  made  nec- 
essary by  the  transaction  of  the  business.1 

The  Federal  land  banks  have  been  of  service  to  the 
government  directly  or  indirectly  on  other  occasions. 
The  Farm  Loan  Act  provides  that  5  per  cent  of  that 
part  of  the  capital  of  the  land  bank,  for  which  stock  is 
outstanding  in  the  name  of  the  national  farm-loan 
associations,  shall  be  invested  in  United  States  gov- 
ernment bonds.  As  a  matter  of  fact  the  land  banks 
have  at  all  times  held  United  States  government  bonds 
in  an  amount  in  excess  of  that  prescribed  by  law;  in 
fact,  as  the  Farm  Loan  Board  points  out  in  its  second 
annual  report,2  an  amount  in  excess  of  $7,000,000 
(approximately  the  amount  of  capital  stock  of  the 
land  banks  outstanding  at  that  time  in  the  name  of 
national  farm-loan  associations)  was  invested  in 
United  States  government  bonds  and  United  States 
certificates  of  indebtedness.  As  we  have  seen,  it  has 
been  necessary  for  the  land  banks,  in  disposing  of  f arm- 

1  Third  Annual  Report  of  the  Federal  Farm  Loan  Board,  pp.  18-19. 

2  Second  Annual  Report  of  the  Federal  Farm  Loan  Board,  p.  8. 


94  THE   FEDERAL  FARM-LOAN 

loan  bonds,  to  purchase  United  States  certificates  of 
indebtedness  in  large  amounts,  to  be  used  as  security 
in  bond  issues  until  such  time  as  mortgages  could  be 
substituted.  As  the  Federal  farm-loan  system  devel- 
ops and  expands,  the  land  banks  will  undoubtedly 
become  of  greater  service  in  the  fiscal  operations  of  the 
government. 

The  provisions  of  the  Farm  Loan  Act  specifying  the 
purposes  for  which  loans  may  be  made  are  of  equal 
importance  with  the  financial  assistance  rendered  to 
the  farmer-borrowers.  These  provisions  make  it  a 
condition  precedent  to  the  granting  of  a  loan  that  the 
proceeds  be  used  for  the  purposes  specified  in  the 
Farm  Loan  Act.  As  we  have  seen,  these  purposes 
include  every  productive  use  to  which  the  farmer  can 
apply  the  proceeds  of  his  loan.  The  farmer's  attention, 
therefore,  has  been  directed  toward  using  credit  for 
productive  purposes,  with  the  result  that  he  has  mani- 
fested a  greater  interest  in  improved  agricultural 
methods.  This  does  not  mean  that  the  efforts  of  the 
United  States  Department  of  Agriculture  are  being 
duplicated,  but  rather  that  they  are  being  assisted  in 
a  very  effective  manner.  The  purpose  of  the  United 
States  Department  of  Agriculture  is  to  bring  home  to 
the  people  in  rural  sections  the  best  things  that  have 
been  learned  of  agricultural  methods  and  needs.  On 
the  other  hand,  county  agents  of  the  United  States 
Department  of  Agriculture  have  in  many  instances 
assisted  in  the  organization  of  national  farm-loan  asso- 
ciations. In  carrying  out  their  duties  as  financial 
agents  of  the  United  States,  the  land  banks  of  Wichita, 
Spokane,  and  St,  Paul  were  indeed  assisted  by  agents 


SYSTEM   IN  OPERATION  95 

of  the  Department  of  Agriculture.  Information  has 
been  disseminated  by  the  extension  department  of  the 
United  States  Department  of  Agriculture,  and  the  state 
agricultural  colleges,  bearing  on  the  advantages  of  the 
Federal  farm-loan  system,  supplementing  publications 
issued  by  the  Farm  Loan  Board  and  the  several  land 
banks. 

The  Federal  land  banks  have  rendered  an  inesti- 
mable service  through  their  legal  departments  to  the 
farmers  of  the  country  who  have  secured  Federal  farm 
loans.  In  some  of  the  land  banks  as  high  as  30  per 
cent  of  the  abstracts  of  title  disclosed  an  unmarketable 
title  to  the  land  offered  to  the  land  bank  for  a  loan. 
The  legal  department  has  listed  the  defects  and  ad- 
vised the  farmer  how  to  make  his  title  marketable, 
thereby  enabling  him  to  secure  a  loan.  In  many  states 
it  was  found  that  the  abstracting  of  titles  was  prac- 
tically an  unknown  business.  In  other  states,  owing  to 
the  absolute  destruction  of  many  records,  carelessness 
in  the  keeping  and  indexing  of  others,  and  the  failure 
of  landowners,  in  many  instances,  to  record  their  evi- 
dence of  title,  it  was  found  necessary  to  arrange  for 
title  insurance  in  order  to  protect  the  land  banks  from 
loss  by  reason  of  failure  of  title.1  The  result  is  that 
thousands  of  farmers  who  previously  had  no  market- 
able title  to  their  lands,  and  other  thousands  who  did 
not  know  what  kind  of  a  title  they  possessed,  have  had 
the  title  to  their  land  straightened  out,  for  which  the 
land  banks  have  charged  a  fee  so  low  that  this  service 
may  almost  be  said  to  have  been  rendered  gratuitously. 

In  some  districts  the  land  banks  have  encouraged  the 

1  Second  Annual  Report  of  the  Federal  Farm  Loan  Board,  p.  12. 


96  THE   FEDERAL   FARM-LOAN 

formation  of  co-operative  buying  and  selling  associa- 
tions, breeding  associations,  co-operative  creameries, 
cheese  factories,  condensing  stations,  and  potato  ware- 
houses. They  have  encouraged  the  good-roads  move- 
ment by  informing  the  management  of  local  associa- 
tions that  they  look  with  disfavor  upon  loans  on  farms 
which  do  not  have  ready  access  to  good  roads,  where, 
as  a  consequence,  the  cost  of  transporting  products  to 
market  is  unduly  high. 

Perhaps  one  of  the  most  striking  instances  of  the 
service  that  the  land  banks  can  render  in  improving 
the  economic  conditions  over  a  large  territory  is  found 
in  the  action  taken  by  the  Federal  Land  Bank  of 
St.  Paul  in  the  summer  of  1918.  As  a  result  of  re- 
peated crop  failures  in  western  North  Dakota,  caused 
by  drought,  the  economic  condition  of  the  farmers 
in  that  part  of  the  state  was  at  that  time  very  un- 
favorable. The  land  bank  sent  a  circular  letter  to 
every  national  farm-loan  association  in  western  North 
Dakota,  calling  attention  to  the  fact  that  there  were 
many  grasses  and  feed  crops  that  could  be  depended 
upon  in  periods  of  drought,  as  well  as  in  normal  years, 
and  that  instead  of  relying  exclusively  upon  grains 
the  farmers  should  turn  their  attention  to  the  raising 
of  live  stock  and  keeping  milk  cows  on  the  farm,  so 
as  to  have  a  dependable  income  in  times  of  drought 
as  well  as  in  times  of  plenty.  The  letter  concluded 
with  the  statement: 

Hereafter  we  will  only  entertain  applications  from  farmers  who 
have  shown  from  their  farming  operations  in  the  past  that  they 
have  a  dependable  income,  and  they  must  have  live  stock  and  dairy 
cows  to  assure  this  for  the  future.    All  loans  that  do  not  comply 


SYSTEM   IN   OPERATION  97 

with  these  requirements  will  be  rejected  by  us,  because  we  00 
r.ot  consider  them  safe  loans.  You  will  understand  that  this  ruling 
is  not  only  to  protect  us  and  the  farmdoan  association,  but  is  for 
the  best  interests  of  the  farmers  themselves. 

This  ruling  was  most  rigidly  enforced,  despite  a  con- 
siderable number  of  protests.  The  report  of  the  State 
Agricultural  College  of  North  Dakota  shows  that  the 
dairy  production  of  the  state  increased  100  per  cent 
during  the  fiscal  year  1 918-19,  this  increase  being 
particularly  large  in  the  western  part  of  the  state. 
At  least  a  part  of  this  increase  is  due  to  the  attitude 
of  the  Federal  land-bank  authorities. 

In  those  sections  of  the  country,  particularly  in  the 
South,  where  lands  have  suffered  from  erosion,  the 
land  banks  have  insisted  upon  terracing  as  one  of  the 
conditions  upon  which  they  will  make  loans  on  rolling 
lands.  Land-bank  appraisers  were  instructed  to  in- 
form themselves  relative  to  these  conditions,  and 
where  damage  had  already  occurred,  and  was  likely 
to  be  increased,  the  land  banks  insisted  that  the 
borrower  should  terrace.  Through  the  county  agent 
of  the  United  States  Department  of  Agriculture  the 
farmer  was  advised  where  and  how  to  terrace.  Until 
this  had  been  done  the  land  bank  held  out  a  sufficient 
amount  of  money  from  the  applicant's  loan  to  pay 
for  this  improvement.  In  other  land-bank  districts 
similar  conditions  arose  which  afforded  the  land  bank 
an  opportunity  to  be  of  additional  service  to  the 
agricultural  interests  of  their  respective  districts. 

The  spirit  of  service  is  not  confined  to  the  Federal 
land  banks.  It  is  also  found  in  the  national  farm-loan 
associations.     While  these  associations  were  formed 


98  THE   FEDERAL  FARM-LOAN 

primarily  for  the  purpose  of  improving  the  credit 
facilities  of  their  members,  in  many  instances  they 
have  carried  their  co-operative  efforts  farther.  In 
one  of  the  large  farm-loan  associations  in  western 
North  Dakota  the  secretary-treasurer,  who  is  a 
banker,  took  it  upon  himself  to  induce  each  prospec- 
tive borrower  to  buy  enough  cows  to  give  him  a  start 
in  dairying.  This  secretary- treasurer  also  went  into 
the  sheep  business  in  partnership  with  one  of  the 
members  of  the  association,  and  these  two  men 
brought  in  cattle  and  sheep,  supplying  them  to  the 
neighboring  farmers  at  reasonable  prices.  The  records 
of  the  land  bank  of  St.  Paul  show  that  there  has  not 
been  a  single  delinquency  in  this  association,  despite 
the  fact  that  it  is  located  in  a  territory  where  drought 
conditions  have  prevailed  to  an  extent  which  has 
caused  very  acute  distress.  In  another  instance,  in 
the  newer  section  of  northern  Wisconsin,  a  secretary- 
treasurer  of  one  association  prevailed  upon  his  mem- 
bers to  place  the  dividends  on  their  stock  in  a  fund  to 
be  used  for  the  purpose  of  reloaning  to  any  member 
of  the  association  to  purchase  dairy  cattle.  During 
the  past  two  years  this  fund  has  been  turned  over  a 
number  of  times. 

The  co-operative  spirit  which  permeates  the  Fed- 
eral farm-loan  system  will  go  far  toward  solving  the 
economic  and  social  problems  of  our  rural  communi- 
ties. A  great  deal  has  been  said  of  late  concerning 
the  trend  of  population  from  country  to  city.  While 
the  alarm  over  the  depopulation  in  favor  of  urban 
districts  is  as  old  as  history,  it  nevertheless  behooves 
us  to  inquire  into  the  status  of  this  "  back-to-the- 


SYSTEM   IN   OPERATION  99 

city  "  trend  at  this  time.  This  gradual  migration  from 
country  to  city  injures  in  no  way  the  welfare  of  the 
rural  districts,  except  in  so  far  as  it  has  to  do  with 
farm  labor.  The  result  to  the  rural  population  is  to 
increase  the  size  of  the  farms — that  is,  to  widen  the 
scope  of  agriculture  for  those  who  remain  on  the 
farms,  and  increase  the  price  of  food  products  to  such 
an  extent  as  the  supply  of  subsistence  needed  for  the 
country  at  large  is  reduced  or  menaced.  The  injury 
results  rather  to  the  nation  at  large.  It  therefore 
becomes  our  duty  to  seek  out  the  causes  and  apply 
the  remedy. 

The  United  States  Bureau  of  Census  reports  that 
in  1 9 10,  3 1. 1  per  cent  of  the  population  of  the  United 
States  lived  in  cities  of  8,000  or  more,  while  in  1790 
there  were  but  3.3  per  cent  of  such  urbanitcs.  In 
1 9 10,  the  bureau  estimated  that  46.3  per  cent  of  our 
people  were  urban  (reckoning  cities  of  2,500  or  more 
as  urban)  as  compared  with  38.1  per  cent  in  1890 
and  40.5  per  cent  in  1900;  while  53.7  per  cent  in  19 10 
were  rural  in  comparison  with  63.9  per  cent  in  1890 
and  59.5  per  cent  in  1900.  The  preliminary  estimate 
of  the  bureau  for  the  year  1920  shows  that  48.1  per 
cent  were  rural  (including  villages)  and  that  38.8 
per  cent  of  our  population  were  actually  living  on 
farms.  This  same  report  shows  that  51.9  per  cent 
were  living  in  towns  of  2,500  or  over. 

The  underlying  causes  of  the  cityward  trend  are 
social  and  economic — social  in  that  the  farmers'  home 
life  has  been  isolated,  and  economic  to  the  extent  that 
adequate  facilities  had  not  been  provided  for  the 
marketing  of  their  security.    Their  social  requirements 


ioo  THE    FEDERAL   FARM-LOAN 

cannot  be  cared  for  by  farm  colonies  or  "back-to-the- 
land  "  movements.  These  have  been  but  local  in  scope, 
with  few  exceptions  were  begun  for  mercenary  mo- 
tives, and,  when  the  dollar  had  been  squeezed  out, 
they  were  left  to  their  fate.  Social,  cultural,  voca- 
tional, and  recreational  needs  of  our  rural  population 
can,  however,  be  met  in  other  ways.  Counter  at- 
tractions equal  in  scope  to  those  of  the  cities  can  be 
brought  to  the  country;  country  life  can  be  and  ought 
to  be  improved;  the  comforts  and  conveniences  of 
the  city  home  can  be  brought  to  the  country  home; 
and  rural  life  can  be  made  more  attractive  by  bring- 
ing to  rural  districts  more  amusements  and  recrea- 
tions for  the  child  and  the  adult. 

The  solution  of  the  economic  problem  is  essential 
to  the  solution  of  the  social  problem.  Social  advan- 
tages cannot  be  brought  to  our  rural  districts  unless 
our  farming  industry  is  adequately  financed.  The 
farm,  in  the  first  instance,  must  be  put  on  a  paying 
basis  if  the  community  itself  is  to  prosper.  When 
this  condition  prevails  rural  life  will  become  more 
desirable.  The  youth  of  the  country  will  not  drift 
to  the  city,  but  will  look  upon  farming  as  an  honorable 
and  useful  life,  with  real  aims  and  ideals. 

The  present  importance  of  agriculture  to  civiliza- 
tion lies  in  the  number  of  people  it  supports ;  its  ulti- 
mate importance  lies  in  the  fact  that  it  must  con- 
tinue to  provide  supplies  for  an  ever-increasing  popu- 
lation. The  problems  of  our  agricultural  industry 
concern  every  member  of  society,  and  it  behooves 
us  to  give  them  our  earnest  consideration.  The 
Federal  farm-loan  system  is  a  forward  step  toward  the 


SYSTEM   IN   OPERATION  101 

solution  of  these  problems  in  the  United  States.  Its 
principal  purpose  is  to  provide  for  our  agricultural 
industry  an  adequate  market  for  the  security  it  has 
to  offer,  which  is  the  soil  itself,  with  a  view  to  properly 
developing  that  soil.  This,  in  the  last  analysis,  is  the 
object  and  aim  of  the  Federal  farm-loan  system.  That 
this  purpose  is  of  great  moment  to  agriculture  and  to 
the  nation  at  large  is  not  to  be  gainsaid.  That  it  has 
and  is  serving  this  purpose  is  a  matter  of  record. 


APPENDIX  A 

JOINT-STOCK   LAND   BANKS 

'"PHE  Federal  Farm  Loan  Act  provides  for  two  sepa- 
*  rate  and  distinct  types  of  banks  within  the  Fed- 
eral farm-loan  system — the  Federal  land  banks  and 
the  joint-stock  land  banks — both  of  which  are  under 
the  general  supervision  of  the  Federal  Farm  Loan 
Board.  Since  the  field  of  operation  of  the  Federal  land 
banks  was  to  include  the  whole  nation,  and  since 
their  establishment  was  mandatory,  while  on  the 
other  hand  the  joint-stock  land  banks  were  to  be  set 
up  only  here  and  there  and  were  in  all  cases  only  per- 
missive, we  may  conclude  that  Congress  regarded  the 
Federal  land  banks  as  the  important  part  of  the 
system.  The  provision  of  the  act  relating  to  joint- 
stock  land  banks  is  as  follows: 

That  corporations,  to  be  known  as  joint-stock  land  banks,  for 
carrying  on  the  business  of  lending  on  farm  mortgage  security 
and  issuing  farm-loan  bonds,  may  be  formed  by  any  number  of 
natural  persons  not  less  than  ten. 

Congress,  in  providing  for  the  establishment  of 
joint-stock  land  banks,  did  not  intend  to  destroy 
established  mortgage  concerns  doing  a  reputable  busi- 
ness. Provision  was  therefore  made  whereby  such  in- 
stitutions, or  any  new  joint-stock  land  banks  that 


104  THE   FEDERAL   FARM-LOAN 

might  be  established,  would  be  clothed  with  the  same 
advantages  as  Federal  land  banks  in  order  that  all 
might  do  their  part  toward  serving  the  farm-loan 
needs  of  the  country. 

Any  joint-stock  land  bank,  so  the  Farm  Loan  Act 
provides,  must  have,  before  it  is  permitted  to  com- 
mence business,  a  subscribed  capital  of  at  least  $250,- 
000,  one  half  of  which  must  have  been  paid  in.  The 
stockholders,  ten  or  more  persons,  elect  from  their 
number  a  board  of  directors  of  not  less  than  five,  who 
select  from  their  number  the  necessary  officers.  The 
capital  stock  of  the  joint-stock  land  banks  is  subscribed 
by  investors,  the  borrowers  not  being  required  to  sub- 
scribe, as  they  must  in  case  they  obtain  a  loan  through 
the  Federal  land  banks.  Dividends  are,  of  course,  paid 
only  to  the  stockholders. 

The  joint-stock  land  banks  secure  funds  for  loaning 
purposes,  as  do  the  Federal  land  banks,  by  the  sale  of 
bonds  which  they  are  permitted  to  issue  up  to  fifteen 
times  their  capital  and  surplus.  While  the  bonds  of 
the  Federal  land  banks  have  behind  them  the  assets 
and  credit  of  all  of  the  twelve  Federal  land  banks,  those 
of  each  joint-stock  land  bank  stand  alone.  They 
enjoy  the  same  privilege  of  tax  exemption  as  do  the 
bonds  of  the  Federal  land  banks.  No  joint-stock  land 
bank  is  permitted  to  receive  deposits  or  to  transact 
any  banking  business  not  expressly  authorized  by  the 
Farm  Loan  Act.  The  territory  within  which  any 
joint-stock  land  bank  may  operate  is  limited  to  the 
state  in  which  it  has  its  principal  office  and  one  con- 
tiguous state.  The  Farm  Loan  Act  provides  that  all 
loans  made  by  joint-stock  land  banks  must  be  on  the 


SYSTEM   IN   OPERATION  105 

amortization  plan  and  shall  in  no  case  bear  a  rate  of 
interest  in  excess  of  6  per  cent. 

While  no  specific  limitation  is  fixed  by  the  Farm 
Loan  Act  upon  the  amount  that  a  joint-stock  land 
bank  may  loan  to  any  borrower  (except  that  no  loan 
may  be  made  in  excess  of  50  per  cent  of  the  value  of 
the  land  and  20  per  cent  of  the  permanent  insured  im- 
provements thereon)  and  while  there  is  no  stipulation 
as  to  the  use  of  the  proceeds  of  a  loan,  the  Farm  Loan 
Board,  in  the  exercise  of  its  general  supervisory  powers, 
has  ruled  that  a  joint-stock  land  bank  may  not  make 
a  loan  to  any  borrower  in  excess  of  1 5  per  cen*  of  its 
capital  stock,  nor,  in  any  event,  in  excess  of  $50,000. 
The  Farm  Loan  Board,  in  order  to  control  the  purpose 
as  well  as  the  amount  to  be  loaned,  was  of  the  opinion 
that  the  loans  made  by  the  joint-stock  land  banks 
should  bear  some  relation  to  the  primary  purposes  for 
which  the  farm-loan  system  was  established,  "to  pro- 
vide capital  for  agricultural  development,"  and,  ac- 
cordingly, issued  a  ruling  to  the  effect  that  loans  are 
not  to  be  made  unless  their  purpose  may  fairly  be  said 
to  be  related  in  some  way  to  agricultural  development. 
The  solicitor  of  the  Treasury,  in  response  to  a  request 
for  a  ruling  upon  the  subject  from  the  Farm  Loan 
Board,  held  that  joint-stock  land  banks  were  subject 
to  the  same  prohibition  as  Federal  land  banks  against 
making  loans  to  corporations.  Upon  review,  the 
Attorney-General  of  the  United  States  approved  the 
opinion  of  the  Solicitor  of  the  Treasury. 

Joint-stock  land  banks,  despite  the  advantages 
claimed  by  reason  of  the  fact  that  they  could  make 
loans  directly  to  farmers  without  the  intervention  of  any 


io6  THE   FEDERAL  FARM-LOAN 

national  farm-loan  association,  were  slow  in  organizing. 
During  the  first  year  a  great  number  of  "promoters" 
in  some  of  the  Western  and  Southern  states  organized 
what  were  called  "rural-credit  associations,"  repre- 
senting that  these  associations  would  subsequently  be 
incorporated  as  joint-stock  land  banks  under  the 
Farm  Loan  Act.  An  early  ruling  of  the  Farm  Loan 
Board,  however,  to  the  effect  that  no  charter  would  be 
granted  to  any  joint-stock  land  bank  in  the  organiza- 
tion of  which  there  had  been  any  expense  for  promo- 
tion soon  put  a  stop  to  these  fraudulent  schemes.  Four 
bona-fidc  joint-stock  land  banks  had  been  organized  up 
to  November  30,  1917.  By  November  30,  1918,  five 
more  had  been  organized,  making  a  total  of  nine, 
which  in  the  aggregate  had  made  loans  up  to  that 
date  to  the  amount  of  $7,289,870,  which  was  less  than 
5  per  cent  of  the  total  business  done  by  the  system. 
During  the  twelve  months  ending  November  30,  191 9, 
however,  the  joint-stock  land  banks  increased  in  num- 
ber from  nine  to  thirty,  the  aggregate  paid  in  capital 
from  $2,010,850  to  $8,638,650,  and  the  total  volume 
of  business  from  $7,289,870  to  $54,126,357.75. 

The  Farm  Loan  Board,  in  its  third  annual  Report 
to  Congress,  states  the  relative  proportion  of  business 
done  by  the  two  classes  of  banks : 

In  the  month  of  November,  191 7  [the  report  says], the  loans  made 
by  the  joint-stock  land  banks  represented  15  per  cent  of  the  busi- 
ness of  the  system  for  that  month.  In  the  month  of  November, 
19 1 8,  the  loans  made  by  these  banks  represented  38  per  cent  of 
the  system.  The  orders  given  for  the  engraving  of  farm-loan 
bonds  bearing  date  November  1,  191 9,  to  be  used  between  that 
date  and  May  1,  1920,  indicate  that  the  joint-stock  land  banks 
expect  to  do  a  volume  of  business  in  that  period  approximately 


SYSTEM   IN   OPERATION  107 

75  per  cent  of  that  expected  to  be  done  by  the  Federal  land  banks. 
It  may  therefore  be  said  that  the  increase  in  number,  and  the 
development  of  the  business,  of  joint-stock  land  banks  is  the  out- 
standing feature  of  the  operations  of  the  Federal  farm-loan  system 
during  the  past  year. 

The  development  of  the  business  of  the  joint-stock 
land  banks  during  the  year  19 19  probably  did  not  re- 
sult in  the  absorption  of  any  considerable  amount  of 
business  that  would  otherwise  have  gone  to  the  Federal 
land  banks.  In  fact,  the  loans  made  by  the  Federal 
land  banks  during  the  year  exceeded  those  of  the  pre- 
vious year  by  $25,000,000,  with  every  indication  to- 
ward an  even  greater  demand  for  loans  when  the 
operations  of  the  system  were  temporarily  halted  by 
the  litigation  involving  the  constitutionality  of  the 
Federal  Farm  Loan  Act.  The  business  of  the  joint- 
stock  land  banks,  therefore,  seems  to  have  been  that 
which  would  otherwise  have  gone  to  the  old-line  mort- 
gage companies. 

An  indication  of  the  possible  profits  of  a  joint-stock 
land  bank  is  given  in  the  Report  of  the  Farm  Loan 
Board  above  referred  to  as  follows: 

For  the  purpose  of  estimating  the  probable  profits  of  a  joint- 
stock  land  bank,  a  pure  estimate  is  of  as  much  value  as  any 
demonstrated  results  to  date.  It  is  easy  to  see  that  the  gross 
profits  of  such  a  bank  are  6  per  cent  on  its  capital  and  1  per  cent 
on  the  volume  of  farm-loan  bonds  outstanding,  which  represents 
1  5  per  cent  additional,  as  the  amount  of  bonds  issued  may  be  fifteen 
times  the  capital  stock.  It  has  been  the  practice  of  these  banks 
to  realize  a  small  premium  on  the  sale  of  their  bonds.  These 
premiums,  added  to  the  charges  which  they  are  entitled  to  make 
against  borrowers,  should  nearly  balance  the  cost  of  "getting 
business  on  the  books."  Any  balance  lacking  would  certainly  be 
made  up  out  of  the  profits  of  the  following  year.    From  the  gross 

8 


108  THE   FEDERAL   FARM-LOAN 

earnings,  which  would  amount  to  21  per  cent  upon  the  stock,  if 
all  the  money  of  the  institution  could  be  kept  invested  all  the  time 
at  6  per  cent,  must  be  deducted  the  loss  on  temporarily  unproduc- 
tive funds  and  the  expense  of  doing  business.  The  net  return  is 
dependent  upon  the  ability  of  the  management  to  keep  down 
expenses  and  minimize  the  amount  of  idle  funds. 

As  a  result  of  agitation  in  Congress  against  the  joint- 
stock  land  banks,  an  amendment  was  adopted  to  the 
Farm  Loan  Act  (approved  May  29,  1920)  providing  for 
the  liquidation  of  joint-stock  land  banks.  This  amend- 
ment states,  in  effect,  that  any  joint-stock  land  bank 
may  go  into  voluntary  liquidation  upon  a  two-thirds 
vote  of  its  shareholders.  During  the  year  1920  three 
joint-stock  land  banks,  two  located  in  the  state  of 
Virginia  and  one  in  the  state  of  Kansas,  availing 
themselves  of  the  privilege  of  this  amendment,  went 
into  voluntary  liquidation. 

The  proponents  of  the  joint-stock  land-bank  feature 
of  the  Farm  Loan  Act  urge  in  their  behalf  the  fact 
that  in  the  making  of  a  loan  the  joint-stock  land  banks 
deal  directly  with  the  farmer,  and  not,  as  do  the  Fed- 
eral land  banks,  through  an  association  of  farmers. 
Therefore  they  contend  there  is  no  red  tape  or  delay 
in  the  making  of  a  loan.  In  answer  it  has  been  stated 
that  the  weight  of  this  argument  loses  its  force  from 
the  fact  that  loans,  through  the  Federal  land  bank,  are 
made  for  thirty  years  or  more.  A  farmer  securing 
such  a  loan  ordinarily  does  not  demand  that  it  be 
closed  immediately  after  making  application.  In  addi- 
tion it  should  be  noted  that  the  making  of  loans 
through  the  Federal  land  bank  was  greatly  expedited 
by  certain  amendments  to  the  Farm  Loan  Act  per- 
mitting the  handling  of  a  loan  in  the  country  almost 


SYSTEM   IN   OPERATION  109 

entirely  by  the  secretary-treasurer  of  a  national  farm- 
loan  association,  thereby  offsetting  what  little  advan- 
tage there  might  be  in  making  the  loans  directly 
through  an  agent  to  the  farmer. 

The  contention  has  also  been  made  that  joint-stock 
land-bank  loans  were  more  favorable  to  the  farmer 
borrowers  for  the  reason  that  they  were  not  required 
by  law  to  invest  5  per  cent  of  the  amount  of  their  loan 
in  capital  stock,  as  is  the  case  in  the  event  a  loan  is 
obtained  through  a  Federal  land  bank.  The  line  of 
demarcation  between  the  two  banks  is  here  clearly 
drawn.  The  joint-stock  land  banks  are  owned  and 
operated  by  private  investors  and  the  profits  are  dis- 
tributed in  the  form  of  dividends  to  its  stockholders. 
The  Federal  land  banks,  on  the  other  hand,  are,  as 
contemplated  by  the  Act,  owned  and  operated  by  the 
farmer-borrowers.  They  are  the  stockholders,  their 
stock  holdings  being  represented  by  5  per  cent  of  the 
amount  of  their  loans.  The  earnings  of  the  Federal 
land  bank  are  distributed  to  the  farmer-borrowers  in 
the  form  of  dividends  on  their  stock  holdings,  thus 
proportionately  reducing  the  amount  of  interest  paid 
on  their  loans.  It  is  often  stated  that  if  a  farmer  bor- 
rows from  a  joint-stock  land  bank  he  receives  the  full 
amount  of  his  loan,  while  the  Federal  land  bank  gives 
him  only  nineteen  twentieths  of  the  amount  he  applies 
for.  While  technically  this  is  true,  as  a  matter  of  fact 
the  farmer  makes  application  for  such  additional 
amount  as  is  necessary  to  cover  his  stock  subscription. 
The  earning  power  of  the  farmer's  stock  holding  is,  as 
we  have  seen,  not  of  prime  importance.  The  fact  that 
he  has  a  voice  in  fixing  the  interest  rate,  subject  to  pre- 


no  THE   FEDERAL  FARM-LOAN 

vailing  money  conditions,  is  of  greater  consideration. 
On  the  other  hand,  the  incentive  for  gain  which  is  ever 
present  with  the  joint-stock  land  banks  makes  the 
earning  power  of  the  stock  the  first  consideration,  as  in 
any  other  privately  owned  and  operated  institution. 


APPENDIX  B 


THE  FEDERAL  FARM  LOAN  ACT 

(Approved  July  17,  1916) 

(39  Stat.  360) 

As  amended  January  18,  1918  (40  Stat.  431); 
April  20,  1920  (Public  Document  No.  182, 
Sixty-sixth  Congress);  and  May  29,  1920 
(Public  Document  No.  232.  Sixty-sixth 
Congress). 

AN  ACT  TO  provide  capital  for  agricultural  develop- 
ment, to  create  standard  forms  of  investment  based 
upon  farm  mortgage,  to  equalize  rates  of  interest 
upon  farm  loans,  to  furnish  a  market  for  United 
States  bonds,  to  create  Government  depositaries  and 
financial  agents  for  the  United  States,  and  for  other 
purposes. 

Be  it  enacted  by  the  Senate  and  House  of 
Representatives  of  the  United  States  of  America 
in  Congress  assembled,  That  the  short  title  of 
this  Act  shall  be  "The  Federal  Farm  Loan 
Act."  Its  administration  shall  be  under  the 
direction  and  control  of  the  Federal  Farm 
Loan  Board  hereinafter  created. 


Purpose. 


Short  title. 
Farm  Loan  Act. 


Administration      un- 
der Farm  Loan  Board. 


Sec. 
mortgage 


DEFINITIONS 

2.  That    wherever    the 


term    ' '  first 
is  used  in  this  Act  it  shall  be  held 


ii2  THE   FEDERAL   FARM-LOAN 

First  mortgage  de-  to  include  such  classes  of  first  liens  on  farm 
fmed-  lands  as  shall  be  approved  by  the  Federal 

Farm  Loan  Board,  and  the  credit  instruments 
secured  thereby.  The  term  "farm-loan 
bonds"  shall  be  held  to  include  all  bonds 
fined™ loan  bonds  dc'  sccurcd  by  collateral  deposited  with  a  farm- 
loan  registrar  under  the  terms  of  this  Act; 
they  shall  be  distinguished  by  the  addition  of 
the  words  "Federal,"  or  "joint  stock,"  as  the 
case  may  be. 

FEDERAL  FARM  LOAN  BOARD 

Sec.  3.  That  there  shall  be  established  at 
Federal  Farm  Loan  the  seat  of  government  in  the  Department  of 

Bureau  established.  ,  1  /-r>  1  1  1  • .  1        . 1 

the  treasury  a  bureau  charged  with  the 
execution  of  this  Act  and  of  all  Acts  amenda- 
tory thereof,  to  be  known  as  the  Federal 
Farm  Loan  Bureau,  under  the  general  super- 
vision of  a  Federal  Farm  Loan  Board. 

Said  Federal  Farm  Loan  Board  shall  con- 
To  consist  of  five  sist  of  five  members,  including  the  Secretary 

members,   including  111,,'  1  1 

secretary  of  Treasury  ot  the  1  reasury,  who  shall  be  a  member  and 

(ex   officio),   to   be   ap-  ■* 

pointed  by  the  Presi-  chairman  ex  officio,  and  four  members  to  be 

dent.  ' 

appointed  by  the  President  of  the  United 

States,  by  and  with  the  advice  and  consent 

of  the  Senate.     Of  the  four  members  to  be 

Bipartisan;  must  be  appointed  by  the  President,  not  more  than 

citizens,  and  devote  en-  1      n     1  •  *•    • 

tire  time.  two  shall  be  appointed  from  one  political 

party,  and  all  four  of  said  members  shall  be 
citizens  of  the  United  States  and  shall  devote 
their  entire  time  to  the  business  of  the  Federal 
Farm   Loan   Board;    they   shall   receive   an 


SYSTEM   IN   OPERATION  113 

annual  salary  of  $10,000  payable  monthly,     salaries  and  expenses 
together  with  actual  necessary  traveling  ex- 
penses. 

One  of  the  members  to  be  appointed  by  the 
President  shall  be  designated  by  him  to  serve 
for  two  years,  one  for  four  years,  one  for  six  Terms  of  ofFlce- 
years,  and  one  for  eight  years,  and  thereafter 
each  member  so  appointed  shall  serve  for  a 
term  of  eight  years,  unless  sooner  removed 
for  cause  by  the  President.  One  of  the  mem- 
bers shall  be  designated  by  the  President  as      „ 

0  "*  Uesipnatc    Farm 

the  Farm  Loan  Commissioner,  who  shall  be  Loan  commissioner. 

the  active  executive  officer  of  said  board.  Each 

member  of  the  Federal  Farm  Loan  Board  shall     oath  of  office  to  be 

.,..~r,  -,  ,.,  .  r  1    •  -j        taken    within    15   days. 

within  fifteen  days  alter  notice  ot  his  appoint- 
ment take  and  subscribe  to  the  oath  of  office. 

The   first   meeting   of   the  Federal  Farm 
Loan  Board  shall  be  held  in  Washington  as  be*j^  ffijffijfc™* 
soon  as  may  be  after  the  passage  of  this  Act, 
at  a  date  and  place  to  be  fixed  by  the  Secre- 
tary of  the  Treasury. 

No  member  of  the  Federal  Farm  Loan 
Board  shall,  during  his  continuance  in  office,      Members  cannot  be 

0  associated    with    other 

be  an  officer  or  director  of  any  other  institu-  banking  or  mortgage 

J  interests. 

tion,  association,  or  partnership  engaged  in 
banking,  or  in  the  business  of  making  land- 
mortgage  loans  or  selling  land  mortgages. 
Before  entering  upon  his  duties  as  a  member 
of  the  Federal  Farm  Loan  Board  each  member 
shall  certify  under  oath  to  the  President  that  0ath  taken- 
he  is  eligible  under  this  section. 

The  President  shall  have  the  power,  by  and 


„4  THE   FEDERAL  FARM-LOAN 

vacancies  in  board  with  the  advice  and  consent  of  the  Senate, 
fiikd  by  th.  President.  tQ  gjj  any  vacancy  occurring  in  the  member- 
ship of  the  Federal  Farm  Loan  Board;  if  such 
vacancy  shall  be  filled  during  the  recess  of 
the  Senate  a  commission  shall  be  granted 
which  shall  expire  at  the  end  of  the  next 
session. 
Board    to    appoint       The  Federal  Farm  Loan  Board  shall  ap- 
d^t£anre^Sr  af"'r  point  a  farm-loan  registrar  in  each  land-bank 

each  district,  land  bank  .  .  f,  .  r  •  C 

appraisers.,  and  land-  district  to  receive  applications  tor  issues  01 
farm-loan  bonds  and  to  perform  such  other 
services  as  are  prescribed  by  this  Act,  and 
may  appoint  a  deputy  registrar  who  shall 
during  the  unavoidable  absence  or  disability 
of  the  registrar  perform  the  duties  of  that 
office.  It  shall  also  appoint  one  or  more 
land-bank  appraisers  for  each  land-bank  dis- 
trict and  as  many  land-bank  examiners  as  it 
shall  deem  necessary.  Farm-loan  registrars, 
aii  to  be  public  off-  deputy  registrars,  land-bank  appraisers,  and 

5ft  insti'tuuS1'  *£  land-bank  examiners   appointed   under   this 

'g'iatetL  section  shall  be  public  officials  and  shall,  dur- 

ing their  continuance  in  office,  have  no  con- 
nection with  or  interest  in  any  other  institu- 
tion, association,  or  partnership  engaged  in 
banking  or  in  the  business  of  making  land- 
mortgage  loans  or  selling  land  mortgages: 

melr^sp^ciaf  ££  Provided,  That  this  limitation  shall  not  apply 
to  persons  employed  by  the  board  temporarily 
to  do  special  work. 
_  ,  .       .  The  salaries  and  expenses  of  the  Federal 

.Salaries  and  expenses  x 

paid  by  umted  states.  parm  Loan  Board,  and  of  farm-loan  regis- 


SYSTEM   IN  OPERATION  115 

trars  and  examiners  authorized  under  this 
section,  shall  be  paid  by  the  United  States. 
Land-bank  appraisers  shall  receive  such  com- 
pensation as  the  Federal  Farm  Loan  Board     ?oarf  to  f«  compen- 

.1,  it^i  ration  of  land-bank  ap- 

shall  fix,  and  shall  be  paid  by  the  Federal  p«"sers  to  be  paid  by 

-1  J  respective   land    banks. 

land  banks  and  the  joint-stock  land  banks 
which  they  serve,  in  such  proportion  and  in 
such  manner  as  the  Federal  Farm  Loan  Board 
shall  order. 

The  Federal  Farm  Loan  Board  shall  be     Board  may  employ 

..         .         1  i  .,  necessary      adniinistra- 

authonzed  and  empowered  to  employ  such  tiveforce. 
attorneys,  experts,  assistants,  clerks,  labor- 
ers,  and  other  employees  as  it  may  deem 
necessary   to  conduct   the  business  of   said 
board.  All  salaries  and  fees  authorized  in  this 
section  and  not  otherwise  provided  for  shall  .  Salaries  and  fees  fixed 
be  fixed  in  advance  by  said  board  and  shall  united  states. 
be  paid  in  the  same  manner  as  the  salaries  of 
the  Federal  Farm  Loan  Board.     All  such  J^^tu^i^vt 
attorneys,  experts,  assistants,  clerks,  labor-  ?££a   of   c'vil-<*rvice 
ers,  and  other  employees,  and  all  registrars, 
examiners,  and  appraisers  shall  be  appointed 
without  regard  to  the  provisions  of  the  Act 
of  January  sixteenth,  eighteen  hundred  and 
eighty -three    (volume    twenty- two,    United 
States  Statutes  at  Large,  page  four  hundred 
and  three),  and  amendments  thereto,  or  any 
rule  or  regulation  made  in  pursuance  thereof : 

r>         *j    j     n\\  ..  .  1  .  1      11  President  may  place 

Froviaca,   Inat  nothing  herein  shall  prevent  employees  in  classified 


service. 


the  President  from  placing  said  employees  in 

the  classified  service.  „  .    .  .    ,  .    . 

I'ederal    land    banks 

Every  Federal  land  bank  shall  semiannu-  must  furmsh  schedule 


„6  THE   FEDERAL  FARM-LOAN 

showing compenn"at"n  ally  submit  to  the  Federal  Farm  Loan  Board  a 
pfoyee°s.offict:rs  ""* e""  schedule  showing  the  salaries  or  rates  of  com- 
pensation paid  to  its  officers  and  employees. 
Board   must   make       The  Federal  Farm  Loan  Board  shall  annu- 

annual  report  to  Speak- 

er  of  the  House.  ally  make  a  full  report  oi  its  operations  to  the 

Speaker  of  the  House  of  Representatives,  who 
shall  cause  the  same  to  be  printed  for  the  in- 
formation of  the  Congress. 
Examinations  and  re-       The  Federal  Farm  Loan  Board  shall  from 

fa°ndSbanksC(to  be^made  time  to  time  require  examinations  and  reports 

to  board  and  published.  rni  11  1  .11-11 

of  condition  of  all  land  banks  established 
under  the  provisions  of  this  Act,  and  shall 
publish  consolidated  statements  of  the  results 
thereof.  It  shall  cause  to  be  made  appraisals 
Board  must  require  of  farm  lands  as  provided  by  this  Act,  and 
mus^Ta'ufe^a'mort^a-  shall  prepare  and  publish  amortization  tables 

tion  tables  to  be  pub-         ,   .    1         1111  11  ,•  1     r  1 

lished.  which  shall  be  used  by  national  iarm-loan 

associations  and  land  banks  organized  under 

this  Act. 

forMsta1emrenCtrofecfo0ndiS       The  Federal  Farm  Loan  Board  shall  pre- 

re°Pno:rtsrequ,re  QUarterly  scribe  a  form  for  the  statement  of  condition 

of  national  farm-loan  associations  and  land 

banks  under  its  supervision,  which  shall  be 

filled  out  quarterly  by  each  such  association 

or  bank  and  transmitted  to  said  board. 

Bulletins  of  informa-       j^  shau  be  the  duty  of  the  Federal  Farm 

tion  must  be  prepared  J 

fngad^anlageslarZ:  Loan  Board  to  prepare  from  time  to  time 

s^cuonrlforgan":  bulletins  setting  forth  the  principal  features 

faL-ioan  aS^fatS  of  this  Act  and  through  the  Department  of 

Agriculture   or   otherwise   to   distribute   the 

same,  particularly  to  the  press,  to  agricultural 

journals,  and  to  farmers'  organizations;    to 


SYSTEM   IN   OPERATION  117 

prepare  and  distribute  in  the  same  manner 
circulars  setting  forth  the  principles  and  ad- 
vantages of  amortized  farm  loans  and  the 
protection  afforded  debtors  under  this  Act, 
instructing  farmers  how  to  organize  and  con-  Invcstore  to  bc  arl. 
duct  farm-loan  associations,  and  advising  in-  Sua^L^fa^toS 
vestors  of  the  merits  and  advantages  of  farm-  rntfh^^^peratto 

1  1  1  jj.1-  •j.-'j.J'  credit  to  be  explained. 

loan  bonds;  and  to  disseminate  m  its  discre- 
tion information  for  the  further  instruction  of 
farmers  regarding  the  methods  and  principles 
of  co-operative  credit  and  organization.  Said 
board  is  hereby  authorized  to  use  a  reason- 
able portion  of  the  organization  fund  provided  m?deKavafiabie.n  fund 
in  section  thirty -three  of  this  Act  for  the 
objects  specified  in  this  paragraph,  and  is 
instructed  to  lay  before  the  Congress  at  each 
session  its  recommendations  for  further  ap-  t.  Further  appropHa- 

*        tions  to  be  asked  from 

propriations  to  carry  out  said  objects.  congress  as  needed. 

FEDERAL   LAND    BANKS 

Sec.  4.  That  as  soon  as  practicable  the     united  states  to  be 

-,-,.,  i-rr  t  T-i  iiii-i-*-iii  divided  into  1 2  districts, 

r  ederal  r  arm  Loan  Board  shall  divide  the  none  to  include  a  frac- 

,    -r-r     •        -1    n  ii-  A11  tional  part  of  a  State. 

contmental  united  States,  excluding  Alaska, 
into  twelve  districts,  which  shall  be  known  as 
Federal  land-bank  districts,  and  may  be  des- 
ignated by  number.  Said  districts  shall  be 
apportioned  with  due  regard  to  the  farm-loan  reftrencerttonfl'rn^ioln 
needs  of  the  country,  but  no  such  district  need3, 
shall  contain  a  fractional  part  of  any  State. 
The  boundaries  thereof  may  be  readjusted 
from  time  to  time  in  the  discretion  of  said 
board. 


n8  THE   FEDERAL  FARM-LOAN 

one    Perioral    land       The  Federal  Farm  Loan  Board  shall  estab- 

bank  in  each  district,       j^     ^     ^^     pcdcral     land-bank     district     a 

Federal  land  bank,  with  its  principal  office 

located  in  such  city  within  the  district  as  said 

Title  to  include  name  board  shall  designate.     Each  Federal  land 

of  city  where  located.  ° 

bank  shall  include  in  its  title  the  name  of  the 

city  in  which  it  is  located.     Subject  to  the 

approval  of  the  Federal  Farm  Loan  Board, 

Branches  any  Federal  land  bank  may  establish  branches 

within  the  land-bank  district. 

Each  Federal  land  bank  shall  be  tempo- 
Temporary   manage-  ««#•««  •  at 

ment  vested  in  five  rariiy  managed  by  five  directors  appointed  by 

resident   bonded   direc-  J  O  J  re  j 

tors-  the  Federal  Farm  Loan  Board.    Said  direct- 

ors shall  be  citizens  of  the  United  States  and 
residents  of  the  district.  They  shall  each  give 
a  surety  bond,  the  premium  on  which  shall 
be  paid  from  the  funds  of  the  bank.  They 
To  receive  compen-  shau  receive  such  compensation  as  the  Fed- 

sation  and  choose  otti-  * 

cers-  eral  Farm  Loan  Board  shall  fix.    They  shall 

choose  from  their  number,  by  majority  vote, 

a  president,  a  vice  president,  a  secretary,  and 

a  treasurer.    They  are  further  authorized  and 

May   employ   ade-  empowered   to  employ  such   attorneys,   ex- 

quate    force;    fix   com-  r  m  1111  1        .1 

pensation.  perts,  assistants,  clerks,  laborers,  and  other 

employees  as  they  may  deem  necessary,  and 

to   fix   their   compensation,    subject   to   the 

approval  of  the  Federal  Farm  Loan  Board. 

Must  make  organi-       Said  temporary  directors  shall,  under  their 

ration  certificate,  to  in-    ,  -       .         -        .-  .,  ...  _j.*.c 

dude—  hands,  forthwith  make  an  organization  certifi- 

cate, which  shall  specifically  state: 
NanwaBSfmed.  First.     The  name  assumed  by  such  bank. 

District   and  city   of  J 

principal  office.  Second.  The  district  within  which  its  op- 


SYSTEM   IN   OPERATION  119 

erations  are  to  be  carried  on,  and  the  particu- 
lar city  in  which  its  principal  office  is  to  be 
located. 

Third.  The  amount  of  capital  stock  and  ,  Capitol  stock;  num. 

*  oer  or  snares. 

the  number  of  shares  into  which  the  same  is 
to  be  divided :  Provided,  That  every  Federal 
land  bank  organized  under  this  Act  shall  by 
its  articles  of  association  permit  an  increase 
of  its  capital  stock  from  time  to  time  for  the  .  increase  of  stock  for 

x  issuance    of    shares    to 

purpose  of  providing  for  the  issue  of  shares  borrowers. 
to  national  farm-loan  associations  and  stock- 
holders who  may  secure  loans  through  agents 
of  Federal  land  banks  in  accordance  with  the 
provisions  of  this  Act. 

Fourth.     The  fact  that  the  certificate  is     organization  certifi- 
cate    must     be     duly 

made  to  enable  such  persons  to  avail  them-  acknowledged,  authen- 

*  ticated,  and  forwarded 

selves  of  the  advantages  of  this  Act.  The  J^£Sfibd;%S 
organization  certificate  shall  be  acknowl-  to  PubUo  ***«*»«■ 
edged  before  a  judge  or  clerk  of  some  court 
of  record,  or  notary  public,  and  shall  be,  to- 
gether with  the  acknowledgment  thereof, 
authenticated  by  the  seal  of  such  court  or 
notary,  transmitted  to  the  Farm  Loan  Com- 
missioner, who  shall  record  and  carefully  pre- 
serve the  same  in  his  office,  where  it  shall  be 
at  all  times  open  to  public  inspection. 

The   Federal    Farm    Loan    Board   is   au-     Board  may  order 

..  ., .    .  changes  in  organization 

thorized  to  direct  such  changes  in  or  additions  certificate. 
to  any  such  organization  certificate,  not  in- 
consistent with  this  Act,   as  it  may  deem 
necessary  or  expedient.  Thus  made  a  body 

Upon  duly  making  and  filing  such  organi-  corP°rate- 


120 


THE   FEDERAL   FARM-LOAN 


With  powers  to — 
Adopt  and  use  seal. 
Have  succession. 


Contract. 

Sue  and  defend. 


Elect  officers  and  di- 
rectors. 


Require  bonds. 


Dismiss  officers  and 
employees. 


Make  by-laws;  pro- 
vide method  for  stock 
transfer,  election  of  di- 
rectors, and  its  general 
business  conducted. 


zation  certificate  the  bank  shall  become,  as 
from  the  date  of  the  execution  of  its  organi- 
zation certificate,  a  body  corporate,  and  as 
such,  and  in  the  name  designated  in  the 
organization  certificate,  it  shall  have  power — 

First.    To  adopt  and  use  a  corporate  seal. 

Second.  To  have  succession  until  it  is  dis- 
solved by  Act  of  Congress  or  under  the  pro- 
visions of  this  Act. 

Third.    To  make  contracts. 

Fourth.  To  sue  and  be  sued,  complain, 
interplead,  and  defend,  in  any  court  of  law 
or  equity,  as  fully  as  natural  persons. 

Fifth.  To  elect  or  appoint  directors,  and 
by  its  board  of  directors  to  elect  a  president 
and  a  vice  president,  appoint  a  secretary  and 
a  treasurer  and  other  officers  and  employees, 
define  their  duties,  require  bonds  of  them, 
and  fix  the  penalty  thereof;  by  action  of  its 
board  of  directors  dismiss  such  officers  and 
employees,  or  any  of  them,  at  pleasure  and 
appoint  others  to  fill  their  places. 

Sixth.  To  prescribe,  by  its  board  of  direct- 
ors, subject  to  the  supervision  and  regulation 
of  the  Federal  Farm  Loan  Board,  by-laws 
not  inconsistent  with  law,  regulating  the 
manner  in  which  its  stock  shall  be  trans- 
ferred, its  directors  elected,  its  officers  elected 
or  appointed,  its  property  transferred,  its 
general  business  conducted,  and  the  privi- 
leges granted  to  it  by  law  exercised  and 
enjoyed. 


SYSTEM   IN  OPERATION  121 

Seventh.      To   exercise,    by   its   board   of     Exercise  incidental 

...  11  ,1         .        1      rvi  ,  powers     necessary     for 

directors  or  duly  authorized  omcers  or  agents,  conduct  of  business, 
subject  to  law,  all  such  incidental  powers  as 
shall  be  necessary  to  carry  on  the  business 
herein  described. 

After  the  subscriptions  to  stock  in  any 
Federal  land  bank  by  national  farm-loan  asso-     When  ji00,ooo  stock 
ciations,  hereinafter  authorized,   shall  have  ioanUbaSsCsrocfadtions,fap^I 

,        -,      .  r  iffk  ,1  /v  1     manent  officers  and  di- 

reached  the  sum  01  $100,000,  the  omcers  and  rectors  to  be  chosen 

.         .  ,    .,         11         11111  1  and  take  over  manage- 

directors  of  said  land  bank  shall  be  chosen  ment. 
as  herein  provided  and  shall,  upon  becoming 
duly  qualified,  take  over  the  management  of 
said  land  bank  from  the  temporary  officers 
selected  under  this  section. 

The  board  of  directors  of  every  Federal     Permanent  directors. 

,  *     .  ..  1111  1,1  1  r,  nine     in     number,     six 

land  bank  shall  be  selected  as  hereinafter  elected  by  farm-ioan 

,  associations,    three   ap- 

specmed  and  shall  consist  of  nine  members,  pointed  by  Farm  Loan 

x  .        Board. 

each  holding  office  for  three  years.  Six  of  said 
directors  shall  be  known  as  local  directors, 
and  shall  be  chosen  by  and  be  representative 
of  national  farm-loan  associations;  and  the 
remaining  three  directors  shall  be  known  as 
district  directors,  and  shall  be  appointed  by 
the  Federal  Farm  Loan  Board  and  represent 
the  public  interest. 
At  least  two  months  before  each  election     Notice  of  election  of 

1X-  T  _,  ..  111  ,t        directors    and    method 

the  .barm  Loan  Commissioner  shall  notify  of  nominations  pre- 
each  national  farm-loan  association  in  writing 
that  such  election  is  to  be  held,  giving  the 
number  of  directors  to  be  elected  for  its  dis- 
trict, and  requesting  each  association  to 
nominate  one  candidate  for  each  director  to 


scribed. 


I22  THE   FEDERAL  FARM-LOAN 

be  elected.  Within  ten  days  of  the  receipt  of 
such  notice  each  association  shall  forward  its 
nominations  to  said  Farm  Loan  Commis- 
sioner. Said  commissioner  shall  prepare  a 
list  of  candidates  for  local  directors  consisting 
of  the  twenty  persons  securing  the  highest 
number  of  votes  from  national  farm-loan 
associations  making  such  nominations. 

At  least  one  month  before  said  election  said 
Farm  Loan  Commissioner  shall  mail  to  each 
national  farm-loan  association  the  list  of 
candidates.  The  directors  of  each  national 
farm-loan  association  shall  cast  the  vote  of 

casting  votes  for  said  association  for  as  many  candidates  on 
said  list  as  there  are  vacancies  to  be  filled, 
and  shall  forward  said  vote  to  the  Farm  Loan 
Commissioner  within  ten  days  after  said  list 
of  candidates  is  received  by  them.  The  candi- 
dates receiving  the  highest  number  of  votes 
shall  be  elected  as  local  directors.  In  case  of 
a  tie  the  Farm  Loan  Commissioner  shall  de- 
termine the  choice. 

Farm   Loan  Board       The  Federal  Farm  Loan  Board  shall  desig- 

designates    district    di-  m         i  > 

rectors;  fixes  terms  of  nate  one  of  the  district  directors  to  serve  for 

otnee. 

three  years  and  to  act  as  chairman  of  the 
board  of  directors.  It  shall  designate  one  of 
said  directors  to  serve  for  a  term  of  two  years 
and  one  to  serve  for  a  term  of  one  year.  After 
the  first  appointments  each  district  director 
shall  be  appointed  for  a  term  of  three  years. 
reslfencUvrtwmsgofaoef-  At  the  first  regular  meeting  of  the  board  of 
nee  for  local  directors,  directors  of  each  Federal  land  bank  it  shall 


SYSTEM   IN   OPERATION  123 

be  the  duty  of  the  local  directors  to  designate 
two  of  the  local  directors  whose  term  of  office 
shall  expire  in  one  year  from  the  date  of  such 
meeting,  two  whose  term  of  office  shall  expire 
in  two  years  from  said  date,  and  two  whose 
term  of  office  shall  expire  in  three  years  from 
said  date.  Thereafter  every  local  director  of 
a  Federal  land  bank  chosen  as  hereinbefore 
provided  shall  hold  office  for  a  term  of  three     Regular  term  after 

XT  .  .         ,       ,  1     first  designation,  three 

years.   Vacancies  that  may  occur  in  the  board  years. 

of  directors  shall  be  filled  for  the  unexpired 

term  in  the  manner  provided  for  the  original  on^SedtermWeie^ 

selection  of  such  directors.  tlon' 

Directors  of  Federal  land  banks  shall  have     Directors   must   be 

,  r  .     ,  ,      .  .  .,  <•     ,  1  residents  of  district  two 

been  tor  "at  least  two  years  residents  of  the  years  previous  to  eiec- 

.  -  1  .    .  1  .  tion ;    one  must  be  en- 

distnct  for  which  they  are  appointed  or  gaged  in  farming, 
elected  and  at  least  one  district  director  shall 
be  experienced  in  practical  farming  and  actu- 
ally engaged  at  the  time  of  his  appointment  in 
farming  operations  within  the  district.  No 
director  of  a  Federal  land  bank  shall,  during  with^oTher  banking  or 

.   .  .  rr  ~,  mortgage  selling     insti- 

his  continuance  in  office,  act  as  an  officer,  tution  or  partnership. 
director,  or  employee  of  any  other  institution, 
association,  or  partnership  engaged  in  bank- 
ing or  in  the  business  of  making  or  selling 
land-mortgage  loans. 

Directors  of  Federal  land  banks  shall  re-  neSsJlry0expensesWein 

jj-,-  ,  ,•  ,1  addition  to  compensa- 

ceive,  in  addition  to  any  compensation  other-  tion. 

wise  provided,   a  reasonable  allowance  for 

necessary  expenses  in  attending  meetings  of 

their  respective  boards,  to  be  paid  by  the  J^^fS^^. 

respective  Federal  land  banks.     Any  com-  Farm  Loan  Board- 
9 


124  THE   FEDERAL  FARM-LOAN 

pensation  that  may  be  provided  by  boards  of 
directors  of  Federal  land  banks  for  directors, 
officers,  or  employees  shall  be  subject  to  the 
approval  of  the  Federal  Farm  Loan  Board. 

CAPITAL    STOCK    OF    FEDERAL    LAND    BANKS 

Sec  5.    That  every  Federal  land  bank  shall 
have,  before  beginning  business,  a  subscribed 
stodcin$7ToUo^o.capital  capital  of  not  less  than  $750,000-    The  Fed- 
eral Farm  Loan  Board  is  authorized  to  pre- 
scribe the  times  and  conditions  of  the  pay- 
conditions  of  payment;  ment  of  subscriptions  to  capital   stock,   to 

may    reject    any    sub-  ,       ,  .  .  , 

scription.  reject  any  subscription  m  its  discretion,  and 

to  require  subscribers  to  furnish  adequate 
security  for  the  payment  thereof. 
Par  value  of  shares       The  capital   stock  of   each   Federal  land 

frarTy^be6Ubscribed  bank  shall  be  divided  into  shares  of  $5  each, 
and  may  be  subscribed  for  and  held  by  any 
individual,  firm,  or  corporation,  or  by  the 
Government  of  any  State  or  of  the  United 
States, 
stock  hew  by  farm-       Stock  held  by  national  farm-loan  associa- 

^tST^S^J"Z  tions  shall  not  be  transferred  or  hypothe- 

hypothecated.  ^^  and  the  certificates  therefor  shall  so 

state. 

stock  held  by  united      Stock  owned  by  the  Government  of  the 

lends3  receives  no  dm"  United  States  in  Federal  land  banks  shall 

receive  no  dividends,   but  all   other  stock 

shall  share  in  dividend  distributions  without 

No  stock  allowed  any  ,  ■•  1     r  i  ~ 

vote  except  that  held  preference.     Each  national  tarm-loan  asso- 

by  United  States  and    *  ,         TT    .        ., 

farm-ioan  associations,  ciation  and  the  Government  01  the  United 

they  being   entitled   to 

one  vote  on  each  share,  crates  shall  be  entitled  to  one  vote  for  each 


SYSTEM  IN  OPERATION  125 

share  of  stock  held  by  it  in  deciding  all  ques- 
tions at  meetings  of   shareholders,   and  no 
other  shareholder  shall  be  permitted  to  vote. 
Stock  owned  by  the  United  States  shall  be  J^d  st^ytock 
voted  by  the  Farm  Loan  Commissioner,  as  as  directed  by  board. 
directed  by  the  Federal  Farm  Loan  Board. 

It  shall  be  the  duty  of  the  Federal  Farm     Books  of  subscription 
Loan  Board,  as  soon  as  practicable  after  the 
passage  of  this  Act,  to  open  books  of  subscript 
tion  for  the  capital  stock  of  a  Federal  land 
bank  in  each  Federal  land-bank  district.    If  ^Jg*£?g  5 
within  thirty  days  after  the  opening  of  said  fiStZ!81  not 
books  any  part  of  the  minimum  capitalization 
of  $750,000  herein  prescribed  for  Federal  land 
banks  shall  remain  unsubscribed,  it  shall  be 
the  duty  of  the  Secretary  of  the  Treasury  to 
subscribe  the  balance  thereof  on  behalf  of  the 
United  States,  said  subscription  to  be  subject  UtsSa^S?l3^SS 
to  call  in  whole  or  in  part  by  the  board  of  notlce' 
directors  of  said  land  bank  upon  thirty  days' 
notice,  with  the  approval  of  the  Federal  Farm 
Loan    Board;     and    the    Secretary    of    the  J^^y  gjre^ 
Treasury  is  hereby  authorized  and  directed  to  Pav for  same- 
take  out  shares  corresponding  to  the  unsub- 
scribed balance  as  called,  and  to  pay  for  the 
same  out  of  any  moneys  in  the  Treasury  not 

No  increase  of  stock 

otherwise  appropriated.    Thereafter  no  stock  thereafter   except   to 

rr       r  .  borrowers  on  mortgage 

shall  be  issued  except  as  hereinafter  provided,  loans. 

After  the  subscriptions  to  capital  stock  by 

national  farm-loan  associations  shall  amount  0riginal  stodc  retired 

to  $750,000  in  any  Federal  land  bank,  said  SLKS'SSS 

bank  shall  apply  semiannually  to  the  pay-  *7S0'000- 


126  THE   FEDERAL   FARM-LOAN 

ment  and  retirement  of  the  shares  of  stock 
which  were  issued  to  represent  the  subscrip- 
tions to  the  original  capital  twenty-five  per 
centum  of  all  sums  thereafter  subscribed  to 
capital  stock  until  all  such  original  capital 
stock  is  retired  at  par. 
Pa?men?su  by  farm-ioan       At  least  twenty-five  per  centum  of  that 

associations     must     be  ,        i>   ,1  •  i     t       r  r\     1         11         11         1 

held  in  quick  assets.  part  of  the  capital  of  any  Federal  land  bank 
for  which  stock  is  outstanding  in  the  name  of 
national  farm-loan  associations  shall  be  held 
in  quick  assets,  and  may  consist  of  cash  in 
the  vaults  of  said  land  bank,  or  in  deposits  in 
member  banks  of  the  Federal  reserve  system, 
or  in  readily  marketable  securities  which  are 
approved  under  rules  and  regulations  of  the 
Five  per  cent  of  such  Federal  Farm  Loan  Board:    Provided,  That 

capital   invested   in 

United  states  bonds.  not  less  than  five  per  centum  of  such  capital 
shall  be  invested  in  United  States  Govern- 
ment bonds. 

GOVERNMENT    DEPOSITARIES 

Land  banks  may  be       Sec.  6.  That  all  Federal  land  banks  and 

designated     as     public     .     . 

depositaries,  except  for  -joint-stock  land  banks  organized  under  this 

custom    receipts;     and  " 

suftnanciai  agents!  Act-  when  designated  for  that  purpose  by  the 
Secretary  of  the  Treasury,  shall  be  deposi- 
taries of  public  money,  except  receipts  from 
customs,  under  such  regulations  as  may  be 
prescribed  by  said  Secretary;  and  they  may 
also  be  employed  as  financial  agents  of  the 
Government ;  and  they  shall  perform  all  such 
reasonable  duties,  as  depositaries  of  public 
money  and  financial  agents  of  the  Govern- 


SYSTEM   IN   OPERATION  127 

1  •        1      r  j\  a 1    11  Satisfactory  security 

ment,  as  may  be  required  of  them.    And  the  required  of  land  banks 

Secretary  of  the  Treasury  shall  require  of  the 

Federal  land  banks  and  joint  -  stock   land 

banks  thus  designated  satisfactory  security, 

by  the  deposit  of  United  States  bonds  or 

otherwise,  for  the  safekeeping  and  prompt 

payment  of  the  public  money  deposited  with 

them,  and  for  the  faithful  performance  of  their 

duties  as  financial  agents  of  the  Government. 

No  Government  funds  deposited  under  the     „       ,,.     , 

x  No     public     deposits 

provisions  of  this  section  shall  be  invested  in  ^JL^.  ,'"ansSteor  £ 
mortgage  loans  or  farm-loan  bonds.  farm-loan  bonds. 

NATIONAL   FARM-LOAN   ASSOCIATIONS 

Sec.   7.  That  corporations,  to  be  known  as     orRanization    farm- 

.  ,  loan  associations. 

national  farm-loan  associations,  may  be  or- 
ganized by  persons  desiring  to  borrow  money 
on  farm-mortgage  security  under  the  terms 
of  this  Act.     Such  persons  shall  enter  into  ti^tortat? obferttf 
articles  of  association  which  shall  specify  in  served.'0" an  terntory 
general  terms  the  object  for  which  the  asso- 
ciation is  formed  and  the  territory  within 
which  its  operations  are  to  be  carried  on, 
and  which  may  contain  any  other  provision, 
not  inconsistent  with  law,  which  the  associa-      May    c?ntain    any 
tion  may  see  fit  to  adopt  for  the  regulation  consLSwith  law. m" 
of  its  business  and  the  conduct  of  its  affairs. 
Said  articles  shall  be  signed  by  the  persons 
uniting  to  form  the  association,  and  a  copy 
thereof  shall  be  forwarded  to  the  Federal  fors^r^dcof0y  ^g£J 
land  bank  for  the  district,  to  be  filed  and  land  bank  and  filed- 
preserved  in  its  office. 


i28  THE   FEDERAL  FARM-LOAN 

Associations  elect  not       Every  national  farm-loan  association  shall 
tesiro'mMuierM1^  elect,  in  the  manner  prescribed  for  the  elec- 

tional  banks.  ,.  r     f  ,  r  ,  •  11  1   ■ 

tion  of  directors  of  national  banking  associa- 
tions, a  board  of  not  less  than  five  directors, 

Directors  hold  office 

one  year.  w}10  shall  hold  office  for  the  same  period  as 

directors  of  national  banking  associations.  It 
shall  be  the  duty  of  said  board  of  directors 
to  choose  in  such  manner  as  they  may  prefer 
a  secretary-treasurer,  who  shall  receive  such 
choose  a  secretary-  compensation  as  said  board  of  directors  shall 

treasurer,   fix  his  com-  _  1       11      1 

pensation.  elect  other  determine.    The  board  of  directors  shall  elect 

officers  and  loan   com- 
mittee of  three.  a  president,  a  vice  president,  and  a  loan  com- 
mittee of  three  members, 
serve  without  com-       The  directors  and  all  officers  except  the 
Eoaif 'Board1  tppiwes  secretary- treasurer  shall  serve  without  com- 
pensation, unless  the  payment  of  salaries  to 
them  shall  be  approved  by  the  Federal  Farm 
Loan  Board.     All  officers  and  directors  ex- 
cept the  secretary-treasurer  shall,  during  their 
term  of  office,  be  bona  fide  residents  of  the 
territory  within  which  the  association  is  au- 

Must  be  residents  of-.,,  -,       «  .  11111  1 

territory  served;  must  thonzed  to  do  business,  and  shall  be  snare- 
be  shareholders.  111  1-1  • 

holders  of  the  association. 

Duties  of  secretary-       it   shall   be   the   duty   of   the   secretary- 
treasurer  specified;  act  J  * 

%CUoteriapro0ceefdsndot  treasurer  of  every  national  farm-loan  associa- 
li^H'orlr^of  tion  to  act  as  custodian  of  its  funds  and  to 
anc^with^ylws"0^"  deposit  the  same  in  such  bank  as  the  board 
of  directors  may  designate,  to  pay  over  to 
borrowers  all  sums  received  for  their  account 
from  the  Federal  land  bank  upon  first  mort- 
gage as  in  this  Act  prescribed,  and  to  meet 
all  other  obligations  of  the  association,  sub- 


SYSTEM   IN  OPERATION  129 

ject  to  the  orders  of  the  board  of  directors 
and  in  accordance  with  the  by-laws  of  the 
association.  It  shall  be  the  duty  of  the  secre- 
tary-treasurer, acting  under  the  direction  of 
the  national  farm-loan  association,  to  collect, 
receipt  for,  and  transmit  to  the  Federal  land-  Pay  over  all  oollec_ 
bank  payments  of  interest,  amortization  in-  ££for  Federal  land 
stallments,  or  principal  arising  out  of  loans 
made  through  the  association.     He  shall  be 

.    .  ..  Custodian  of  securi- 

the    custodian    of    the    secunties,    records,  ties,  records,  and  aii 

documents. 

papers,  certificates  of  stock,  and  all  docu- 
ments relating  to  or  bearing  upon  the  conduct 
of  the  affairs  of  the  association.  He  shall 
furnish  a  suitable  surety  bond  to  be  prescribed 

.,  iiii-r\ii-n\  t  Furnish  bond  for  per- 

and  approved  by  the  rederal  .barm  Loan  formance  of  duties. 
Board  for  the  proper  performance  of  the 
duties  imposed  upon  him  under  this  Act, 
which  shall  cover  prompt  collection  and  trans- 
mission of  funds.  He  shall  make  a  quarterly  po^ake  iuarterfy  re- 
report  to  the  Federal  Farm  Loan  Board  upon 
forms  to  be  provided  for  that  purpose.  Upon 
request  from  said  board  said  secretary- treas- 
urer shall  furnish  information  regarding  the     Pumish  statement  of 

0  °  condition. 

condition  of  the  national  farm-loan  associa- 
tion for  which  he  is  acting,  and  he  shall  carry 
out  all  duly  authorized  orders  of  said  board. 
He  shall  assure  himself  from  time  to  time  that  proceedsS  oVs foans  are 
the  loans  made  through  the  national  farm- 
loan  association  of  which  he  is  an  officer  are 
applied  to  the  purposes  set  forth  in  the  appli- 
cation of  the  borrower  as  approved,  and  shall 
forthwith  report  to  the  land  bank  of  the  dis- 


properly  applied. 


i3o  THE   FEDERAL  FARM-LOAN 

trict  any  failure  of  any  borrower  to  comply 

Report    failure    or         .,■•     .,        ,  r  i   •  f       j_#  a 

noncompliance  with  ap-  with  the  terms  ot  his  application  or  mortgage. 

plication  by  borrower;    TT       ,      „     ,  .  1  .  ..  ,         , 

ascertain   and   report  lie  shall  also  ascertain  and  report  to  said  bank 

delinquent     taxes     on 

mortgaged  land.  the  amount  of  any  delinquent  taxes  on  land 

mortgaged  to  said  bank  and  the  name  of  the 
delinquent. 

The  reasonable  expenses  of  the  secretary- 
treasurer,    the   loan    committee,    and   other 
officers  and  agents  of  national  farm-loan  asso- 
Expenses  and  salary  ciations,    and   the   salary   of   the   secretary  - 

of    secretary  -  treasurer  J  J 

paid  by  association.  treasurer,  shall  be  paid  from  the  general  funds 
of  the  association,  and  the  board  of  directors 
is  authorized  to  set  aside  such  sums  as  it  shall 
deem  requisite  for  that  purpose  and  for  other 
expenses  of  said  association.  When  no  such 
Directors  may  levy  funds  are  available,   the  board  of  directors 

assessment  on  members 

if  necessity  arises.  may  levy  an  assessment  on  members  in  pro- 
portion to  the  amount  of  stock  held  by  each, 
which  may  be  repaid  as  soon  as  funds  are 
available,  or  it  may  secure  an  advance  from 

from  Federal  iand  bank  the  Federal  land  bank  of  the  district,  to  be 

in  anticipation  of  divi-  .  .    ..  , 

dends.  repaid  with  interest  at  the  rate  of  six  per 

centum  per  annum,  from  dividends  belonging 
to  said  association.  Said  Federal  land  bank 
is  hereby  authorized  to  make  such  advance 
and  to  deduct  such  repayment. 

Ten   persons   owning  r^  .  ,  «  .  1 

land  may  form  a  farm-       1  en  or  more  natural  persons  who  are  the 

loan  association.  111  r 

owners,  or  about  to  become  the  owners,  of 
farm  land  qualified  as  security  for  a  mortgage 
loan  under  section  twelve  of  this  Act,  may 

spedSed^re^uKenta  unite  to  form  a  national  farm-loan  associa- 
baving   directors   not  t^on     They  ^fi  organize  subject  to  the  re- 


SYSTEM   IN   OPERATION  131 

quirements  and  the  conditions  specified  in  SSSjSta^S 
this  section  and  in  section  four  of  this  Act,  so  IJiedMt  be  shareholder. 
far  as  the  same  may  be  applicable :  Provided, 
That  the  board  of  directors  may  consist  of 
five  members  only,  and  instead  of  a  secretary 
and  a  treasurer  there  shall  be  a  secretary- 
treasurer,  who  need  not  be  a  shareholder  of 
the  association. 

When  the  articles  of  association  are  for-     Report  of  loan  com- 
mittee   must    accom- 

warded  to  the  Federal  land  bank  of  the  dis-  pany  articles  rfamocia- 

»»^j.v^.v^^    «^    „  tion,    with   affidavit   of 

trict  as  provided  in  this  section,  they  shall  be  ^SS^ST£& 

accompanied  by  the  written  report  of  the  loan  j^ble  lor  mort^e 

committee  as  required  in  section  ten  of  this 

Act,  and  by  an  affidavit  stating  that  each  of 

the  subscribers  is  the  owner,  or  is  about  to 

become  the  owner,   of  farm  land   qualified 

under  section  twelve  of  this  Act  as  the  basis 

of  a  mortgage  loan ;  that  the  loan  desired  by 

each  person  is  not  more  than  $10,000,  nor  jjo.oo^^oneVe^on, 

less  than  $100,  and  the  aggregate  of  the  de-  $°o.oofew1tn  Original 

1  ,  .  .     application,  so  that  in- 

sired  loan  is  not  less  than  $20,000;  that  said  itiai    subscription    to 

stock  of  land  bank  can- 

affidavit  is  accompanied  by  a  subscription  to  not  be  less  than  $1,000. 

c  j  *  Application  must  state 

stock  in  the  Federal  land  bank  equal  to  five  ^^^Sf^00 
per  centum  of  the  aggregate  sum  desired  on 
mortgage  loans;  and  that  a  temporary  organi- 
zation of  said  association  has  been  formed  by 
the  election  of  a  board  of  directors,  a  loan 
committee,  and  a  secretary  -  treasurer  who 
subscribes  to  said  affidavit,  giving  his  resi- 
dence and  post-office  address.  to{SSS5.*BtaS 
Upon  receipt  of  such  articles  of  association,  ^Vt^S™ be 
with  the  accompanying  affidavit  and  stock  panted. 


t32  THE   FEDERAL  FARM-LOAN 

subscription,  the  directors  of  said  Federal 
land  bank  shall  send  an  appraiser  to  investi- 
gate the  solvency  and  character  of  the  appli- 
cants and  the  value  of  their  lands,  and  shall 
then  determine  whether  in  their  judgment  a 
charter  should  be  granted  to  such  association. 
Application  and  affi-  Thev  shall  forward  such  articles  of  association 

davit  must  be  forward-  J  .«-»-.  1        -r»    J 

ed  to  Farm  Loan  Board   ancj  ^g  accompanying  affidavit  to  the  -Fed- 
eral  Farm   Loan   Board   with   their  recom- 
mendation.    If  said  recommendation  is  un- 
favorable, the  charter  shall  be  refused. 
„     ,  If  said  recommendation  is  favorable,  the 

Boprd      may      grant 

rito^and^r^afd^o  Federal  Farm  Loan  Board  shall  thereupon 
k?Sme.'  °r  may  re"  grant  a  charter  to  the  applicants  therefor, 
designating  the  territory  in  which  such  asso- 
ciation may  make  loans,  and  shall  forward 
said  charter  to  said  applicants  through  said 
Federal  land  bank :  Provided,  That  said  Fed- 
eral Farm  Loan  Board  may  for  good  cause 
shown  in  any  case  refuse  to  grant  a  charter. 
sums  to  be  loaned       Upon  receipt  of  its  charter  such  national 
ce!vetieafteT:icharterr!s  farm-loan  association  shall  be  authorized  and 
empowered  to  receive  from  the  Federal  land 
bank  of  the  district  sums  to  be  loaned  to  its 
members  under  the  terms  and  conditions  of 
this  Act. 
a.ionmusurb-      Whenever  any  national  farm-loan  associa- 
eraib1a^dStb°aCnkoftoFeadn  tion  shall  desire  to  secure  for  any  member  a 
c"ntu  of  loans  l  apphed  loan  on  first  mortgage  from  the  Federal  land 
bank  of  its  district  it  shall  subscribe  for  capital 
stock  of  said  land  bank  to  the  amount  of  five 
per  centum  of  such  loan,  such  subscription  to 


granted. 


fit 


lor 


SYvSTEM   IN   OPERATION  133 

be  paid  in  cash  upon  the  granting  of  the  loan 

by  said  land  bank.     Such  capital  stock  shall      stock  retained  as  coi- 

11         1  11  1  lateral     security,     but 

be  held  by  said  land  bank  as  collateral  secur-  dividends  thereon   to 

be  paid   association  as 

ity  for  the  payment  of  said  loan,  but  said  declared, 
association  shall  be  paid  any  dividends  ac- 
cruing and  payable  on  said  capital  stock  while 
it  is  outstanding.    Such  stock  may,  in  the  dis-     stock  may  be  paid 

,  .  r  , ,         -,.  ,  ,        •  .  1     , 1  1     off  at  par.  and  must  tie 

cretion  of  the  directors,  and  with  the  approval  when  loans  are  paid. 
of  the  Federal  Farm  Loan  Board,  be  paid 
off  at  par  and  retired,  and  it  shall  be  so  paid 
off  and  retired  upon  full  payment  of  the  mort- 
gage loan.     In  such  case  the  national  farm-      Association  must  re- 
loan  association  shall  pay  off  at  par  and  retire  jjJSSt^gcfttpS; 
the  corresponding  shares  of  its  stock  which 
were  issued  when  said  land-bank  stock  was 
issued.     The  capital  stock  of  a  Federal  land      Federal   land -bank 

*  stock  cannot  be  reduced 

bank  shall  not  be  reduced  to  an  amount  less  ^SSSSfSSS^^ 
than  five  per  centum  of  the  principal  of  the 
outstanding  farm-loan  bonds  issued  by  it. 

CAPITAL  STOCK  OF  NATIONAL  FARM-LOAN 
ASSOCIATIONS 

Sec.  8.  That  the  shares  in  national  farm-      Par  value  of  shares 
loan  associations  shall  be  of  the  par  value  of 
$5  each. 

Every  shareholder  shall  be  entitled  to  one     Each  share  1  vote, 

,,  r       ,        11111  1   •  j.    but     one     shareholder 

vote  on  each  share  01  stock  held  by  him  at  limited  to  20  votes. 
all  elections  of  directors  and  in  deciding  all 
questions  at  meetings  of  shareholders:  Pro- 
vided, That  the  maximum  number  of  votes 
which  may  be  cast  by  any  one  shareholder 
shall  be  twenty. 


i34  THE  FEDERAL  FARM-LOAN 

Members  and  share-       No  persons  but  borrowers  on  farm-land 

holders  confined  to  bor-  .  1111  1  1111 

rowers.  mortgages  shall  be  members  or  shareholders 

of  national  farm-loan  associations.  Any  per- 
son desiring  to  borrow  on  farm-land  mortgage 
through  a  national  farm-loan  association  shall 
make  application  for  membership  and  shall 
subscribe  for  shares  of  stock  in  such  farm- 

Every   applicant   for    -,  ■     ,•  ,  ,  1     .        r> 

loan  must  apply  for  loan  association  to  an  amount  equal  to  five 

membership    and    sub-  r,i  r  r-    j  1  1       •         -11 

scribe  to  stock  in  asso-  per  centum  of  the  face  oi  the  desired  loan, 

ciation   to  extent   of   5  ,..  -  •  1    • 

per  cent  of  desired  loan.  said  subscription  to  be  paid  in  cash  upon  the 

granting  of  the  loan.     If  the  application  for 

membership    is    accepted    and    the    loan    is 

Loan   granted   and  granted,  the  applicant  shall,  upon  full  pay- 

ca°nCtk  becomes^member  ment  theref or,  become  the  owner  of  one  share 

and  shareholder.  r  .       .  ...  •  1    1  •,•  r 

of  capital  stock  in  said  loan  association  tor 

each  $100  of  the  face  of  his  loan,  or  any  major 

stock  retired  when  fractional  part  thereof.     Said  capital  stock 

loan    is    paid    on;     in  r  i 

"liTte'rafsecurit^bo^  shall  De  Pai(i  off  at  Par  and  retired  upon  full 
dends  dedare'dntgherdeoVn"  payment  of  said  loan.      Said  capital  stock 
shall  be  held  by  said  association  as  collateral 
security  for  the  payment  of  said  loan,  but 
said  borrower  shall  be  paid  any  dividends 
accruing  and  payable  on  said  capital  stock 
while  it  is  outstanding, 
capital  stock  to  be       Every     national     farm  -  loan     association 
t"onea1eioansnarePrCadc!  formed  under  this  Act  shall  by  its  articles  of 
association   provide   for   an   increase   of   its 
capital  stock  from  time  to  time  for  the  pur- 
pose of  securing  additional  loans  for  its  mem- 
bers and  providing  for  the  issue  of  shares  to 

6ta\edrefnequarteriy  re-  borrowers  in  accordance  with  the  provisions 
pons  to  board.  of  this  Act_    Such  increases  shall  be  included 


SYSTEM   IN  OPERATION  135 

in  the  quarterly  reports  to  the  Federal  Farm 
Loan  Board. 

NATIONAL  FARM-LOAN  ASSOCIATIONS. — 
SPECIAL   PROVISIONS 

Sec.  9.  That  any  person  whose  application     Every  member  e„. 
for  membership  is  accepted  by  a  national  SS  a?eavSieWun" 

r  1  .     ,  •  1111  ,«,i      1    ,       1  less  land  bank  or  Farm 

farm-loan  association  shall  be  entitled  to  bor-  Loan  Board  otherwise 

.  ,         .,  .  r...  determine. 

row  money  on  farm-land  mortgage  upon  filing 
his  application  in  accordance  with  section 
eight  and  otherwise  complying  with  the  terms 
of  this  Act  whenever  the  Federal  land  bank 
of  the  district  has  funds  available  for  that 
purpose,  unless  said  land  bank  or  the  Federal 
Farm  Loan  Board  shall,  in  its  discretion, 
otherwise  determine. 

Any    person    desiring    to    secure    a    loan  forBs°t^c0^mmpryoce^ 
through  a  national  farm-loan  association  un-  jjjjg1  gbynteamortiza- 
der  the  provisions  of  this  Act  may,  at  his  tlon— 
option,  borrow  from  the  Federal  land  bank 
through  such  association  the  sum  necessary 
to  pay  for  shares  of  stock  subscribed  for  by 
him  in   the  national  farm-loan  association, 
such  sum  to  be  made  a  part  of  the  face  of  the 
loan  and  paid  off  in  amortization  payments: 
Provided,  however,  That  such  addition  to  the     Provided  amount  of 

,  111  ,1  'ii-ij-  •  j     loan    does    not    exceed 

loan  shall  not  be  permitted  to  increase  said  maximum  limit. 
loan  above  the  limitation  imposed  in  sub- 
section fifth  of  section  twelve. 

Subject  to  rules  and  regulations  prescribed  tam^om  mTerTs^co!" 

.  .1  t*     1  1      -r*  t  t>j  lected    commission   not 

by    the    .Federal    rarm    Loan    Board,    any  exceeding  one  eighth  of 

-  -  •    .•  1      11   1  x-j.1    j    j.  1    per   cent   semiannu- 

farm-loan  association  shall  be  entitled  to  re-  aiiy. 


136  THE   FEDERAL  FARM-LOAN 

tain  as  a  commission  from  each  interest  pay- 
ment on  any  loan  indorsed  by  it  an  amount 
to  be  determined  by  said  board  not  to  exceed 
one  eighth  of  one  per  centum  semiannually 
upon  the  unpaid  principal  of  said  loan,  any 
amounts  so  retained  as  commissions  to  be 
tur^drtidendsoTsJck  deducted  from   dividends  payable  to   such 
Mi£Jb2£rft£!  farm-loan   association  by  the  Federal  land 
&%S&IS£  bank,  and  to  make  application  to  the  land 
bank  of  the  district  for  loans  not  exceeding 
in  the  aggregate  one  fourth  of  its  total  stock 
holdings  in   said  land  bank.     The  Federal 
land  banks  shall  have  power  to  make  such 
loans  to  associations  applying  therefor  and  to 
charge  interest  at  a  rate  not  exceeding  six 
per  centum  per  annum, 
shareholders  of  asso-       Shareholders  of  every  national  farm-loan 

ciations    personally    h-  ,--.-..-        ,, 

able  for  its  debts  to  ex-  association  shall  be  held  individually  respon- 

tent  of  stock  severally 

held-  sible,  equally  and  ratably,  and  not  for  an- 

other, for  all  contracts,  debts,  and  engage- 
ments of  such  association  to  the  extent  of  the 
amount  of  stock  owned  by  them  at  the  par 
value  thereof,  in  addition  to  the  amount  paid 
in  and  represented  by  their  shares. 
Any  natural  person       After  a  charter  has  been   granted  to  a 

owning  or  about  to  own  ***• v  ° 

comf edmeambermayuin  national  farm-loan  association,  any  natural 
ffbSrow  ofmort!  person  who  is  the  owner,  or  about  to  become 
KoTto  aSff!  the  owner,  of  farm  land  qualified  under  sec- 
per cento   esire   oan.  ^.^  tweive  0f  this  Act  as  the  basis  of  a  mort- 
gage loan,  and  who  desires  to  borrow  on  a 
mortgage  of  such  farm  land,  may  become  a 
member  of  the  association  by  a  two-thirds 


SYSTEM   IN   OPERATION  137 

vote  of  the  directors  upon  subscribing  for  one 
share  of  the  capital  stock  of  such  association 
for  each  $100  of  the  face  of  his  proposed  loan 
or  any  major  fractional  part  thereof.  He 
shall  at  the  same  time  file  with  the  secretary- 
treasurer  his  application  for  a  mortgage  loan, 
giving  the  particulars  required  by  section 
twelve  of  this  Act. 

APPRAISAL 

Sec.  10.  That  whenever  an  application  for     Application  for  loans 

*  *  must  be  referred  to  loan 

a  mortgage  loan  is  made  through  a  national  committce- 
farm-loan   association,    the   loan   committee     l^  commiUee,  or 
provided  for  in  section  seven  of  this  Act,  ZmT™t^"t™ 
shall  forthwith  make,  or  cause  to  be  made,  and  'written  report!lsal 
such  investigation  as  it  may  deem  necessary 
as  to  the  character  and  solvency  of  the  appli- 
cant,   and   the   sufficiency   of   the   security 
offered,  and  cause  written  report  to  be  made 
of  the  result  of  such  investigation,  and  shall, 
if  it  concurs  in  such  report,  approve  the  same 
in  writing.    No  loan  shall  be  made  unless  the  approve0  ^om0^^* 
report  is  favorable,  and  the  loan  committee  favorable.6  s  report  1S 
is  unanimous  in  its  approval  thereof. 

The  written  report  required  in  the  pre-  „2SSrfS2Sffik 
ceding  paragraph  shall  be  submitted  to  the  director8- 
Federal  land  bank,  together  with  the  appli- 
cation for  the  loan,  and  the  directors  of  said 
land  bank  shall  examine  said  written  report 
when  they  pass  on  the  loan  application  which 
it  accompanies,  but  they  shall  not  be  bound 
by  said  appraisal. 


i38  THE   FEDERAL  FARM-LOAN 

Land  bank  must  refer       Before  any  mortgage  loan  is  made  by  any 

ESSfiEtkilEZ  Federal  land  bank,  or  joint-stock  land  bank, 

report^whic^mus^be  it  shall  refer  the  application  and  written  re- 
fa  vorable     if    loan     is  .  . 

made.  port  of  the  loan  committee  to  one  or  more  or 

the  land-bank  appraisers  appointed  under  the 
authority  of  section  three  of  this  Act,  and 
such  appraiser  or  appraisers  shall  investigate 
and  make  a  written  report  upon  the  land 
offered  as  security  for  said  loan.  No  such 
loan  shall  be  made  by  said  land  bank  unless 
said  written  report  is  favorable. 
cnbed^Vam^oan  Forms  for  appraisal  reports  for  farm-loan 
Board-  associations   and  land   banks   shall  be  pre- 

scribed by  the  Federal  Farm  Loan  Board. 

Farm  Loan  Board  to       Land-bank  appraisers  shall  make  such  ex- 
direct    land-bank    ap-  .  ..  .      ,  j  -.  « 

praisers  as  to  investiga-  animations  and  appraisals  and  conduct  such 

tion   and   examination.    ...  -  ,  .  1 

investigations,    concerning   tarm-loan   bonds 
and  first  mortgages,  as  the  Federal  Farm  Loan 
Board  shall  direct. 
Borrower  not  eligible       No  borrower  under  this  Act  shall  be  eli- 
bl  membereof  loan  com-  gible  as  an  appraiser  under  this  section,  but 
teresetedw  ere  "  borrowers  may  act   as  members   of  a  loan 

committee  in  any  case  where  they  are  not 
personally  interested  in  the  loan  under  con- 
sideration. When  any  member  of  a  loan  com- 
mittee or  of  a  board  of  directors  is  interested, 
directly  or  indirectly,  in  a  loan,  a  majority  of 
the  board  of  directors  of  any  national  farm- 
loan  association  shall  appoint  a  substitute 
substitute  on  loan  to  act  in  his   place   in  passing   upon  such 

committee  may  be  ap-  x 

pointed  by  directors.        loan. 


SYSTEM   IN  OPERATION  139 

POWERS    OF    NATIONAL   FARM-LOAN 
ASSOCIATIONS 

Sec.   11.     That  every  national  farm  -  loan  ticJt!m'Ioan  associa" 
association  shall  have  power: 

First.     To  indorse,   and  thereby  become     May  indorse  mort. 
liable  for  the  payment  of,  mortgages  taken  Bage8, 
from  its  shareholders  by  the  Federal  land  bank 
of  its  district. 

Second.    To  receive  from  the  Federal  land  .  Receive  funds  from 

land  bank. 

bank  of  its  district  funds  advanced  by  said  bo£^e;£er  funds  t0 
land  bank,  and  to  deliver  said  funds  to  its 
shareholders   on   receipt   of  first   mortgages 
qualified  under  section  twelve  of  this  Act. 

Third.    To  fix  reasonable  initial  charges  to     Fix  chafes  by  farm- 

loan    association;     own 

be  made  against  applicants  for  loans  and  to  property  reared  for  its 

0  r  r  business. 

borrowers  in  order  to  meet  the  necessary  ex- 
penses of  the  association:  Provided,  That 
such  charges  shall  not  exceed  amounts  to  be 
fixed  by  the  Farm  Loan  Board,  and  shall  in 
no  case  exceed  one  per  centum  of  the  amount 
of  the  loan  applied  for ;  to  acquire  and  dispose 
of  property,  real  and  personal,  that  may  be 
necessary  or  convenient  for  the  transaction  of 
its  business. 

Fourth.  To  issue  certificates  against  depos-     May  issue  certificates 

r,  .  ,  bearing     interest     con- 

lts  of  current  funds  bearing  interest  tor  not  vertibie  into  farm-loan 

longer  than  one  year  at  not  to  exceed  four 

per  centum  per  annum  after  six  days  from 

date,  convertible  into  farm-loan  bonds  when 

presented  at  the  Federal  land  bank  of  the 

district  in  the  amount  of  $25  or  any  multiple 
10 


bonds. 


i4o  THE   FEDERAL  FARM-LOAN 

thereof.     Such  deposits,  when  received,  shall 

be  forthwith  transmitted  to  said  land  bank, 

Fund*  thus  arising  and  be  invested  by  it  in  the  purchase  of  farm- 
to  be  invested  in  mort-  .  ,  t^iiiiii 

pages  or  farm-ioan  loan  bonds  issued  by  a  Federal  land  bank  or 

bonds  by  Federal  land  . 

bank-  in  first  mortgages  as  denned  by  this  Act. 

RESTRICTIONS    ON    LOANS    BASED    ON    FIRST 
MORTGAGES 

Sec.  i2.     That  no  Federal  land  bank  or- 
ganized under  this  Act  shall  make  loans  ex- 
cept upon  the  following  terms  and  conditions : 
Loans  must  be  se-       First.  Said  loans  shall  be  secured  by  duly 

cured    by    first    mort-  " 

ffin  °distn™   ***  recorded  first  mortgages  on  farm  land  within 
stock  banks  exempted.  the  iand-bank  district  in  which  the  bank  is 
situated. 

Mortgages  must  con-       Second.     Every  such  mortgage  shall  con- 
tain   provision   for   re-  .  ...  .  - 

payment  or  amortiza-  tain  an  agreement  providing  lor  the  repay- 

tion  plan.  °  •  •  1  i 

ment  of  the  loan  on  an  amortization  plan  by 
means  of  a  fixed  number  of  annual  or  semi- 
interest  iate  on  mort-  annual  installments  sufficient  to  cover,  first, 
SThnann0tiepCe"dcent  a  charge  on  the  loan  at  a  rate  not  exceeding 
K^u^aintbondt3pald  the  interest  rate  in  the  last  series  of  farm-loan 
bonds  issued  by  the  land  bank  making  the 
loan;    second,   a  charge  for  administration 
and  profits  at  a  rate  not  exceeding  one  per 
centum  per  annum  on  the  unpaid  principal, 
said  two  rates  combined  constituting  the  in- 
iMtaiiment   to   in-  terest  rate  on  the  mortgage ;  and,  third,  such 

elude  sufficient  amount  ,  1*1  ,1  •        •        1  "II 

to  extinguish  debt  after  amounts  to  be  applied  on  the  principal  as  will 

expiration    of    5    years.  .  1  .     j 

but  within  40  years,  at  extinguish  the  debt  withm  an  agreed  period, 

option  of  borrower.  °  £ 

not  less  than  five  years  nor  more  than  torty 
years:   Provided,  That  after  five  years  from 


SYSTEM   IN   OPERATION  141 

the  date  upon  which  a  loan  is  made  the 
mortgagor  may,  upon  any  regular  installment 
date,  make,  in  advance,  any  number  of  pay-     Principal,  may    ho 

paid  as  desired  after  5 

ments  or  any  portion  thereof  on  account  of  vear9  with  an?  insta11- 

•'     *  ment. 

the  principal  of  his  loan  as  provided  by  his 

contract  or  pay  the  entire  principal  of  such 

loan,  under  the  rules  and  regulations  of  the 

Federal   Farm   Loan   Board:    And  provided     interest rateonmort- 

further,  That  before  the  first  issues  of  farm-  sue  of  fum-w  bonds 

.  determined     by      land 

loan  bonds  by  any  land  bank  the  interest  bank. 
rate  on  mortgages  may  be  determined  in  the 
discretion  of  said  land  bank,  subject  to  the 
provisions  and  limitations  of  this  Act. 

Third.    No  loan  on  mortgage  shall  be  made     interest  charged  on 

1  . 1   •       a  ,  !.£•*.  l  J  ■  mortgages  must  not  ex- 

under  this  Act  at  a  rate  of  interest  exceeding  ceed  &  per  cent  per 

annum. 

six  per  centum  per  annum,  exclusive  of  amor- 
tization payments. 

Fourth.    Such  loans  may  be  made  for  the  J£g^02r#£k 
following  purposes  and  for  no  other.  banks  e'xemPted- 

(a)  To  provide  for  the  purchase  of  land  turBaru^a8nd  for  agricul" 
for  agricultural  uses. 

(b)  To  provide  for  the  purchase  of  equip-     Buy  equipment.  fer- 

v    '  ±  x  *      ■*•        tihzers,  live  stock. 

ment,  fertilizers,  and  live  stock  necessary  for 
the  proper  and  reasonable  operation  of  the 
mortgaged  farm;  the  term  "equipment"  to  be 
defined  by  the  Federal  Farm  Loan  Board. 

(c)  To  provide  buildings  and  for  the  im-  .  Provide  buildings  and 
provement  of  farm  lands;    the  term   "im- 
provement" to  be  defined  by  the  Federal 

Farm  Loan  Board. 

(d)  To  liquidate  indebtedness  of  the  owner  neSifnhcurrredifodrelS- 
of   the  land   mortgaged   incurred  for  agri-  cultural  purposes- 


i42  THE   FEDERAL  FARM-LOAN 

cultural  purposes,  or  incurred  prior  to  the 
organization  of  the  first  farm-loan  association 
established  in  and  for  the  county  in  which 
the  land  is  situated, 
not  exceed  so  Per  cent       Fifth.    No  such  loan  shall  exceed  fifty  per 

of    appraised    value    of  *     '■ 

laenrmanent°  improve-  centum  of  the  value  of  the  land  mortgaged 
£emtsSured.eon,latterto  and  twenty  per  centum  of  the  value  of  the 
permanent,  insured  improvements  thereon, 
by  agHcuHurafTalue  said  value  to  be  ascertained  by  appraisal,  as 
fannds?an  provided  in  section  ten  of  this  Act.    In  making 

said  appraisal  the  value  of  the  land  for  agri- 
cultural purposes  shall  be  the  basis  of  ap- 
praisal and  the  earning  power  of  said  land 
shall  be  a  principal  factor. 

A  reappraisal  may  be  permitted  at  any 
time  in  the  discretion  of  the  Federal  land 
bank,    and    such    additional    loan    may    be 
granted  as  such  reappraisal  will  warrant  un- 
aSedfrwTthout'new  der  the  provisions  of  this  paragraph.    When- 
appraisai.  ever  ^Q  amount  0f  the  loan  applied  for  ex- 

ceeds the  amount  that  may  be  loaned  under 
the  appraisal  as  herein  limited,  such  loan  may 
be  granted  to  the  amount  permitted  under  the 
terms  of  this  paragraph  without  requiring  a 
u  *  »„    new  application  or  appraisal. 

Borrowers   must   en-  -^i  rxr 

i^fImorSSStion  °f       Sixth.    No  such  loan  shall  be  made  to  any 

joint  stock  banks  ex-  person  who  is  not  at  the  time,  or  shortly  to 

empted.  become,  engaged  in  the  cultivation  of  the 

farm  mortgaged.    In  case  of  the  sale  of  the 

mortgaged  land,  the  Federal  land  bank  may 

Mortgages  assumed  permit  said  mortgage  and  the  stock  interests 

by  a  purchaser.  *  °    ° 

of  the  vendor  to  be  assumed  by  the  purchaser. 


Reappraisal. 


Loans     granted     for 


SYSTEM  IN  OPERATION  143 

In  case  of  the  death  of  the  mortgagor,  his     in  case  of  death  icBai 

,  .      <  1  •       1  1  .  •  representatives  of  Lor- 

heir  or  heirs,  or  his  legal  representative  or  rower  may  assume  his 
representatives,  shall  have  the  option,  within 
sixty   days  of   such   death,    to  assume   the 
mortgage  and  stock  interests  of  the  deceased. 

Seventh.    The  amount  of  loans  to  any  one  J£f&°2iSZ£SSZ 
borrower  shall  in  no  case  exceed  a  maximum  to  any  borrower- 
of  $10,000,  nor  shall  any  loan  be  for  a  less  exempted.810' 
sum  than  $100. 

Eighth.    Every  applicant  for  a  loan  under     Applicant  must  state 

°  j        1.  1.  on      prescribed      forms 

the  terms  of  this  Act  shall  make  application  gjJg'JJ  ioranWarehto  rbe 

on  a  form  to  be  prescribed  for  that  purpose  used- 

by  the  Federal  Farm  Loan  Board,  and  such 

applicant  shall  state  the  objects  to  which  the 

proceeds  of  said  loan  are  to  be  applied,  and 

shall  afford  such  other  information  as  may 

be  required. 

Ninth.    Every  borrower  shall  pay  simple  aSftH  cSSf^S. 
interest  on  defaulted  payments  at  the  rate  of  eSBorrower  must  un- 

.     «    ,  .  j    1  _     dertake  to  pay  all  taxes 

eight  per  centum  per  annum,  and  by  express  and  other  iiens. 
covenant  in  his  mortgage  deed  shall  under- 
take to  pay  when  due  all  taxes,  liens,  judg- 
ments, or  assessments  which  may  be  lawfully 
assessed  against  the  land  mortgaged.   Taxes, 
liens,   judgments,   or  assessments  not  paid  p*[  Ofnmordtgagbeecd0ebet 
when  due,  and  paid  by  the  mortgagee,  shall  ?enrde£ear  8  per  ccnt  m' 
become  a  part  of  the  mortgage  debt  and  shall 
bear  simple  interest  at  the  rate  of  eight  per 
centum  per  annum.     Every  borrower  shall  keBtufndsiu1rge8d  mu3t  be 
undertake  to  keep  insured  to  the  satisfaction 
of  the  Federal  Farm  Loan  Board  all  buildings 
the  value  of  which  was  a  factor  in  determining 


i44  THE   FEDERAL   FARM-LOAN 

Losses   payable   to  the  amount  of  the  loan.    Insurance  shall  be 
^may  require  in-  made  payable  to  the  mortgagee  as  its  interest 

surance  money  used  for  .  r  ,  1,1 

rebuilding.  may  appear  at  time  01  loss,  and,  at  the  option 

of  the  mortgagor  and  subject  to  general  regu- 
lations of  the  Federal  Farm  Loan  Board,  sums 
so  received  may  be  used  to  pay  for  recon- 
struction of  the  buildings  destroyed, 
if  proceeds  of  loan       Tenth.      Every    borrower    who    shall    be 

expended   otherwise  ..  .  ,  .  .    .  -      ,   . 

than  agreed  (joint-stock  granted  a  loan  under  the  provisions  of  this 

banks  being  exempted).      .  .  , 

Act  shall  enter  into  an  agreement,  in  form 
and  under  conditions  to  be  prescribed  by  the 
Federal  Farm  Loan  Board,  that  if  the  whole 
or  any  portion  of  his  loan  shall  be  expended 

if  borrower  be  in  de-  for  purposes  other  than  those  specified  in  his 
original  application,  or  if  the  borrower  shall 
be  in  default  in  respect  to  any  condition  or 
covenant  of  the  mortgage,  the  whole  of  said 
loan  shall,  at  the  option  of  the  mortgagee, 
lected""  may  be  co1"  become  due  and  payable  forthwith:  Provided, 
That  the  borrower  may  use  part  of  said  loan 

Part  proceeds  may  be  to  pay  for  his  stock  in  the  farm-loan  associa- 

used  to  purchase  stock       .  111  -11  1      1      1  -1  •  1 

required  for  member-  tion,  and  the  land  bank  holding  such  mort- 

ship.  .  «ii  1 

gage  may  permit  said  loan  to  be  used  for  any 
purpose  specified  in  subsection  fourth  of  this 
section. 
iZedXpow1rofbymlenhd0er;       Eleventh.    That  no  loan  or  the  mortgage 

cannot   impair  validity  •  ,1  1      11     i_        •  •        1 

of  mortgage.  securing  the  same  shall  be  impaired  or  in- 

validated by  reason  of  the  exercise  of  any 
power  by  any  Federal  land  bank  or  national 
farm-loan  association  in  excess  of  powers 
herein  granted  or  any  limitations  thereon. 

'  Funds  transmitted   to  farm-loan   associa- 


SYSTEM   IN   OPERATION  145 

tions  by  Federal  land  banks  to  be  loaned  to 

its  members  shall  be  in  current  funds,   or  toB^v*pE2LJ?d 

farm -loan    bonds,    at    the    option    of    the  loaainfam-loaobood'- 

borrower. 

POWERS   OF   FEDERAL    LAND   BANKS" 

Sec.  13.     That  every  Federal  land  bank     Peder^  land  bankB. 
shall  have  power,  subject  to  the  limitations  powcia~ 
and  requirements  of  this  Act — 

First.    To  issue,  subject  to  the  approval  of     May  issue  and  buy 
the  Federal  Farm  Loan  Board,  and  to  sell  bcmds;  prepay  bame. 
farm-loan  bonds  of  the  kinds  authorized  in 
this  Act,  to  buy  the  same  for  its  own  account, 
and  to  retire  the  same  at  or  before  maturity. 

Second.    To  invest  such  funds  as  may  be     May  invest  in  mon- 

•j_  •  •        ,t  1  r  ,.,-.-     RaRcs  on  farm  lands  sit- 

in  its  possession  in  the  purchase  of  qualified  uated  in  district. 

first  mortgages  on  farm  lands  situated  within 

the  Federal  land-bank  district  within  which 

it  is  organized  or  for  which  it  is  acting. 

Third.    To  receive  and  to  deposit  in  trust     May  hypothecatc 

with  the  farm-loan  registrar  for  the  district,  STsSt/X 

to  be  by  him  held  as  collateral  security  for 

farm-loan  bonds,  first  mortgages  upon  farm 

land  qualified  under  section  twelve  of  this 

Act,  and  to  empower  national  farm-loan  asso-  .  May  u*iliee  "Sf0**?- 

•^  "WLJW       t,ons     ancj     agents     to 

ciations,  or  duly  authorized  agents,  to  collect  SStheioT1^  pay' 
and  immediately  pay  over  to  said  land  banks 
the  dues,  interest,  amortization  installments, 
and  other  sums  payable  under  the  terms,  con- 
ditions, and  covenants  of  the  mortgages  and 
of  the  bonds  secured  thereby. 

Fourth.    To  acquire  and  dispose  of — 


i46  THE   FEDERAL  FARM-LOAN 

May  buy.  seii.  or  (a)  Such  property,  real  or  personal,  as  may 
forsrtsPbusrness.required  be  necessary  or  convenient  for  the  transaction 
of  its  business,  which,  however,  may  be  in 
part  leased  to  others  for  revenue  purposes. 

No  real  estate  ac-       (D)  Parcels  of  land  acquired  in  satisfaction 

quired    in    satisfaction  \    '  1 

debte^iKTdtonBCT  of  debts  or  Purchased  at  sales  under  judg- 
SalluToritT'from  ments,  decrees,  or  mortgages  held  by  it.   But 

Farm  Loan  Board.  nQ   guch  bank   ^j  hold   title  and  possession 

of  any  real  estate  purchased  or  acquired  to 
secure  any  debt  due  to  it,  for  a  longer  period 
than  five  years,  except  with  the  special  ap- 
proval of  the  Federal  Farm  Loan  Board  in 
writing. 

May   deposit   with       Fifth.     To  deposit  its  securities,  and  its 

feTeiwTterestthere^n.  current   funds   subject   to   check,   with  any 

member  bank  of  the  Federal  Reserve  System, 

and  to  receive  interest  on  the  same  as  may 

be  agreed. 

May  accept  deposits      Sixth.    T°  accept  deposits  of  securities  or 
ftionns.farm"loan  assocm"  of   current   funds   from   national   farm-loan 
associations  holding  its  shares,  but  to  pay  no 
interest  on  such  deposits. 

Seventh.    To  borrow  money,  to  give  secur- 

May  borrow  money. 

ity  therefor,  and  to  pay  interest  thereon. 
May  deal  in  United       Eighth.     To  buy  and  sell  United  States 

States  bonds.  Hnnd^ 

May  charge  appii-  Ninth.  To  charge  applicants  for  loans  and 
expense^  incurred^Tn  borrowers,  under  rules  and  regulations  pro- 
praisai  and  determina-  mulgated  by  the  Federal  Farm  Loan  Board, 

tionof  title.  °  ~ 

reasonable  fees  not  exceeding  the  actual  cost 
of  appraisal  and  determination  of  title.  Legal 
fees  and  recording  charges  imposed  by  law  in 


SYSTEM   IN   OPERATION  147 

the  States  where  the  land  to  be  mortgaged  is 
located  may  also  be  included  in  the  prclimi- 

■*  t  Borrower     may     re- 

nary  costs  of  negotiating  mortgage  loans.  1  he  c^j^expensra  to 

borrower  may  pay  such  fees  and  charges  or  he  J2JJf£jk32id  off  by 
may  arrange  with  the  Federal  land  bank  mak- 
ing the  loan  to  advance  the  same,  in  which  case 
said  expenses  shall  be  made  a  part  of  the  face 
of  the  loan  and  paid  off  in  amortization  pay- 
ments. Such  addition  to  the  loan  shall  not 
be  permitted  to  increase  said  loan  above  the 
limitations  provided  in  section  twelve. 

RESTRICTIONS    ON    FEDERAL    LAND    BANKS 

Sec.  14.     That  no  Federal  land  bank  shall 
have  power — 

First.    To  accept  deposits  of  current  funds     ^^^^ 
payable  upon  demand  except  from  its  own  ^J^  orno*ra™: 
stockholders,  or  to  transact  any  banking  or  Press,y  ^"-d- 
other  business  not  expressly  authorized  by 
the  provisions  of  this  Act. 

Second.    To  loan  on  first  mortgage  except     Loans  made  exciu- 

.  sively  through  associa- 

through  national   farm-loan   associations  as  tions  or  agents, 
provided  in  section  seven  and  section  eight  of 
this  Act,  or  through  agents  as  provided  in 
section  fifteen. 

Third.    To  accept  any  mortgages  on  real     only  first  mortgages 

j  ,    .  accepted,    unless    e.rist- 

estate  except  first  mortgages  created  subject  inK  loans  require  add. 
to  all  limitations  imposed  by  section  twelve 
of  this  Act,  and  those  taken  as  additional 
security  for  existing  loans. 

Fourth.    To  issue  or  obligate  itself  for  out- 
standing farm-loan  bonds  in  excess  of  twenty 


tional  security. 


Farm-loan  bonds  lim- 
ited to  twenty  times 
capital  and  iurplus. 


I48  THE   FEDERAL   FARM-LOAN 

taSfffiS^SK  times  the  amount  of  its  capital  and  surplus, 

twenty  ntimc^itsehoid°  or  to  receive  from  any  national  farm-loan 

association  additional   mortgages  when   the 

principal  -remaining  unpaid  upon  mortgages 

already  received  from  such  association  shall 

exceed  twenty  times  the  amount  of  its  capital 

stock  owned  by  such  association. 

no  commission  or       Fifth.    To  demand  or  receive,  under  any 

aiiyrIuthorfzIetd.speafic"  form  or  pretense,  any  commission  or  charge 

not  specifically  authorized  in  this  Act. 

AGENTS  OF  FEDERAL  LAND  BANKS 

Agents  of  land  banks  Sec.  i  5.  That  whenever,  after  this  Act 
reryonl;eyeearabllshed  af'  shall  have  been  in  effect  one  year,  it  shall 
appear  to  the  Federal  Farm  Loan  Board  that 
national  farm-loan  associations  have  not  been 
formed,  and  are  not  likely  to  be  formed,  in 
any  locality,  because  of  peculiar  local  condi- 
tions, said  board  may,  in  its  discretion,  au- 
thorize Federal  land  banks  to  make  loans  on 
farm  lands  through  agents  approved  by  said 
board. 
Loans  through  agents       Such  loans  shall  be  subject  to  the  same 

subject  to  same  condi-  ,  .  ,,     . 

tions  as  to  associations,  conditions  and  restrictions  as  it  the  same  were 

Borrowers   through 

agencies  must  purchase  made    through   national   farm-loan    associa- 

stock    in    Federal    land        «-«"-«-^  t> 

cen\\noanent  °f  5  per  tions,  and  each  borrower  shall  contribute  five 
per  centum  of  the  amount  of  his  loan  to  the 
capital  of  the  Federal  land  bank,  and  shall 
become  the  owner  of  as  much  capital  stock  of 
the  land  bank  as  such  contribution  shall  war- 
rant. 

No  agent  other  than  a  duly  incorporated 


SYSTEM   IN   OPERATION  149 

bank,    trust   company,    mortgage   company,  bate^or'SS'SfioM 

.....  1         .  11  ,«         chartered  by  State. 

or  savings  institution,  chartered  by  the 
State  in  which  it  has  its  principal  office, 
shall  be  employed  under  the  provisions  of 
this  section. 

Federal  land  banks  may  pay  to  such  agents     Expenscs  connccted 
the  actual  expense  of  appraising  the  land  teJawfto^SX 

0.  1  • ,        c  1  •     '  J     commission,    which 

ottered  as  security  lor  a  loan,  examining  and  must  be  deducted  from 

...  ,  .    ,         ,  r  -  ,   .  borrower's  future  divi- 

certifying  the  title  thereof,  and  making,  exe-  dends. 
cuting,  and  recording  the  mortgage  papers; 
and  in  addition  may  allow  said  agents  not  to 
exceed  one-half  of  one  per  centum  per  annum 
upon  the  unpaid  principal  of  said  loan,  such 
commission  to  be  deducted  from  dividends 
payable  to  the  borrower  on  his  stock  in  the 
Federal  land  bank. 

Actual  expenses  paid  to  agents  under  the  be^enseartaofa?oan^ 
provisions  of  this  section  shall  be  added  to  jgj  off  by  *™^: 
the  face  of  the  loan  and  paid  off  in  amortiza- 
tion payments  subject  to  the  limitations  pro- 
vided in  subsection  ninth  of  section  thirteen 
of  this  Act. 

Said  agents,  when  required  by  the  Federal  anJ*^ft  ^entl'ou 
land  banks,  shall  collect  and  forward  to  such  tffi«t^ge?quired' 
banks  without  charge  all  interest  and  amorti- 
zation payments  on  loans  indorsed  by  them. 

Any  agent  negotiating  any  such  loan  shall     Agents  must  indorse 

-  ,  -,  a.    «-        «.  .«  and  become  liable  upon 

indorse  the  same  and  become  liable  tor  the  mortgages  received 

from  them,  such  mort- 

pavment  thereof,  and  for  any  default  by  the  ea*?es  not  to  exceed  ten 

x      ■'  times     agents      capital 

mortgagor,  on  the  same  terms  and  under  the  and  surplus, 
same  penalties  as  if  the  loan  had  been  orig- 
inally made  by  said  agent  as  principal  and 


i5o  THE  FEDERAL  FARM-LOAN 

sold  by  said  agent  to  said  land  bank,  but  the 
aggregate  of  the  unpaid  principal  of  mortgage 
loans  received  from  any  such  agent  shall  not 
exceed  ten  times  its  capital  and  surplus. 
Agencies  in  any  dis-       jf  a£  anv  time  the  district  represented  by 

tnct    may    be    discon-  J  tr  j 

tinued  by  Farm  Loan  any  agent  under  the  provisions  of  this  sec- 
tion shall,  in  the  judgment  of  the  Federal 
Farm  Loan  Board,  be  adequately  served  by 
national  farm-loan  associations,  no  further 
loans  shall  be  negotiated  therein  by  agents 
under  this  section. 

JOINT-STOCK  LAND  BANKS 

joint-stocv  land      Sec.  16.    That  corporations,  to  be  known 

banks  formed  by  10  or  .     .     .  1     1  i  1  1  r  •  ^1 

more    persons   under  as  joint-stock  land  banks,  tor  carrying  on  the 

Federal    land-bank    or-  .  .    . 

ganization  require-  business  of  lending  on  farm-mortgage  secur- 

ments.  ■  .  .  .  f*  ,  ,  , 

ity  and  issuing  farm-loan  bonds,  may  be 
formed  by  any  number  of  natural  persons  not 
less  than  ten.  They  shall  be  organized  sub- 
ject to  the  requirements  and  under  the  con- 
ditions set  forth  in  section  four  of  this  Act, 
so  far  as  the  same  may  be  applicable:  Pro- 
vided, That  the  board  of  directors  of  every 
Minimum  number  of  joint-stock  land  bank  shall  consist  of  not  less 

directors  live.  •> 

than  five  members. 
aiiy^farbihe0personany7or  Shareholders  of  every  joint-stock  land  bank 
e"tenteofeSbtolkahoid°  organized  under  this  Act  shall  be  held  indi- 
vidually responsible,  equally  and  ratably, 
and  not  one  for  another,  for  all  contracts, 
debts,  and  engagements  of  such  bank  to  the 
extent  of  the  amount  of  stock  owned  by  them 
at  the  par  value  thereof,  in  addition  to  the 


SYSTEM   IN   OPERATION  151 

amount  paid  in  and  represented  by  their 
shares. 

Except  as  otherwise  provided,  joint-stock     Except  otherwise 

,  provided,  to  have  same 

land  banks  shall  have  the  powers  of,  and  be  j^1"?  an,d,  limitations 

*  as  Federal  land  banks. 

subject  to  all  the  restrictions  and  conditions 
imposed  on,  Federal  land  banks  by  this  Act, 
so  far  as  such  restrictions  and  conditions  are 

1  •       11  7-,  •  j     1     ;  mi      j_  j_i        /~*  United  States  cannot 

applicable :  Provided,  however,  1  hat  the  Gov-  subscribe    to    capital 
ernment  of  the  United  States  shall  not  pur- 
chase or  subscribe  for  any  of  the  capital 
stock  of  any  such  bank;  and  each  shareholder     c.      ...      . 

J  '  Shareholders  have 

of  any  such  bank  shall  have  the  same  voting  °ntock? for  each  share 
privileges  as  holders  of  shares  in  national 
banking  associations. 

No  joint-stock  land  bank  shall  have  power     Banks  cannot  issue 

,,.         ...        ir  r  ,     ,  -■•  r  bonds  aggregating  more 

to  issue  or  obligate  itself  tor  outstanding  farm-  than  15  times  capital 

and  surplus,  nor  receive 

loan   bonds  in   excess  of  fifteen   times   the  deposits  nor  transact 

business    not   expressly 

amount  of  its  capital  and  surplus,  or  to  re-  authorized- 
ceive  deposits  or  to  transact  any  banking  or 
other  business  not  expressly  authorized  by 
the  provisions  of  this  Act. 

No  joint-stock  land  bank  shall  be  author-     Minimum  capital, 

..  .  j2So,ooo,  one  half  paid 

ized  to  do  business  until  capital  stock  to  the  »n  «"}».  balance  subject 
amount  of  at  least  $250,000  has  been  sub- 
scribed, one  half  thereof  paid  in  cash  and  the 
balance  subject  to  call  by  the  board  of  direct- 
ors, and  a  charter  has  been  issued  to  it  by 
the  Federal  Farm  Loan  Board. 

No  joint-stock  land  bank  shall  issue  any     stock  must  be  paid 

J  *      up   before   issuance   of 

bonds  until  after  the  capital  stock  is  entirely  bonds- 
paid  up. 
Farm-loan  bonds  issued  by  joint-stock  land 


i52  THE  FEDERAL  FARM-LOAN 

Bonds  must  be  differ-  banks  shall  be  so  engraved  as  to  be  readily 
fl1  Fcdwai  land-bank  distinguished  in  form  and  color  from  farm- 
loan  bonds  issued  by  Federal  land  banks,  and 
shall  otherwise  bear  such  distinguishing  marks 
as  the  Federal  Farm  Loan  Board  shall  direct. 
Exempt  from  certain       Joint-stock  land  banks  shall  not  be  subject 
FXrananTbanks.e  to  to  the  provisions  of  subsection  (b)  of  section 
seventeen  of  this  Act  as  to  interest  rates  on 
mortgage  loans  or  farm-loan  bonds,  nor  to  the 
provisions  of  subsections  first,  fourth,  sixth, 
seventh,  and  tenth  of  section  twelve  as  to 
Loans   confined   to  restrictions   on    mortgage   loans:     Provided, 
Ks^ffief^sS  however,  That  no  loans  shall  be  made  which 
or1rfonePsut1Pcaon°tilu!  are  not  secured  by  first  mortgages  on  farm 
lands  within  the  State  in  which  such  joint- 
stock  land  bank  has  its  principal  office,  or 
within  some  one  State  contiguous  to  such 
State.    Such  joint-stock  land  banks  shall  be 
subject  to  all  other  restrictions  on  mortgage 
loans  imposed  on  Federal  land  banks  in  sec- 
tion twelve  of  this  Act. 
interest  charge  on       Joint-stock  land  banks  shall  in  no  case 

farm  loans  limited  to  I 

per  cent  over  rate  paid  charge  a  rate  of  interest  on  farm  loans  exceed- 
on  bonds. 

ing  by  more  than  one  per  centum  the  rate  of 
interest  established  for  the  last  series  of  farm- 
loan  bonds  issued  by  them. 
No  commission  or      Joint-stock  land  banks  shall  in  no  case  de- 

-.harge   not   specifically  -  •  t  r 

mthorized.  mand  or  receive,  under  any  form  or  pretense, 

any  commission  or  charge  not  specifically 

authorized  in  this  Act. 

against3  "hy^ShSed       Each  joint-stock  land  bank  organized  un- 

mortgagea.  ^er  j-jjjg  ^ct  gj^j  have  authority  so  issue 


SYSTEM  IN  OPERATION  153 

bonds  based  upon  mortgages  taken  by  it  in 
accordance  with  the  terms  of  this  Act.  Such 
bonds  shall  be  in  form  prescribed  by  the 
Federal  Farm  Loan  Board,  and  it  shall  be  .  under  prescribed 

forms,    stating    therein 

stated  in  such  bonds  that  such  bank  is  organ-  ^J^^^f6 
ized   under   section   sixteen   of   this   Act,    is 
under  Federal  supervision,  and  operates  un- 
der the  provisions  of  this  Act. 

Anv  joint-stock  land  bank  organized  and     voluntary  liquidation 

J     J  "  of     joint  -  stock     land 

doing  business  under  the  provisions  of  this  banks. 
Act  may  go  into  voluntary  liquidation  by 
making  provision,  to  be  approved  by  the 
Federal  Farm  Loan  Board,  for  the  payment  of 
its  liabilities :  Provided,  That  such  method  of 
liquidation  shall  have  been  duly  authorized 
by  a  vote  of  at  least  two  thirds  of  the  share- 
holders of  such  joint-stock  land  bank  at  a 
regular  meeting,  or  at  a  special  meeting  called 
for  that  purpose,  of  which  at  least  ten  days' 
notice  in  writing  shall  have  been  given  to 
stockholders. 

For  the  purpose  of  assisting  in  any  such 
liquidation  duly  authorized  as  in  the  preced- 
ing paragraph  provided,  any  Federal  land 
bank  may,  with  the  approval  of  the  Federal 
Farm  Loan  Board,  acquire  the  assets  and 
assume  the  liabilities  of  any  joint-stock  land 
bank,  and  in  such  transaction  may  waive  the 
provisions  of  this  Act  requiring  such  land 
bank  to  acquire  its  loans  only  through  na- 
tional farm-loan  associations,  or  agents,  and 
those  relating  to  status  of  borrower,  purposes 


154  THE  FEDERAL  FARM-LOAN 

of  loan,  and  also  the  limitation  as  to  the 
amount  of  individual  loans. 

No  Federal  land  bank  shall  assume  the 
obligations  of  any  joint-stock  land  bank,  in 
such  manner  as  to  make  its  outstanding  obli- 
gations more  than  twenty  times  its  capital 
stock,  except  by  the  creation  of  a  special 
reserve  equal  to  one  twentieth  of  the  amount 
of  such  additional  obligations  assumed. 

POWERS  OF  FEDERAL  FARM  LOAN  BOARD 

po^-Loan  Board;       Sec-   j7-     Tnat   tne  Federal   Farm   Loan 
Board  shall  have  power — ■ 
charter  Federal  land       (a)  To  organize  and  charter  Federal  land 

banks,  joint-stock  land    11  1..1  j  •  1    r  1 

banks,  and  farm-ioan  banks,  and  to  charter  national  t arm-loan  as- 
sociations and  joint-stock  land  banks  subject 
to  the  provisions  of  this  Act,  and  in  its  dis- 
cretion to  authorize  them  to  increase  their 
capital  stock. 
Fix  interest  charges       (b)     To  review  and  alter  at  its  discretion 

jwnt-stock  banks  ex-  the  rate  of  interest  to  be  charged  by  Federal 
land  banks  for  loans  made  by  them  under  the 
provisions  of  this  Act,  said  rates  to  be  uniform 
so  far  as  practicable. 

(c)     To  grant  or  refuse  to  Federal  land 

make^ specific  issue  of  franks,  or  joint-stock  land  banks,  authority  to 
make  any  specific  issue  of  farm-loan  bonds. 

Repuiate  charges  to       (d)  To  make  rules  and  regulations  respect- 
borrowers.  -       .  -  - 

mg  the  charges  made  to  borrowers  on  loans 

under  this  Act  for  expenses  in  appraisal,  de- 
termination of  title,  and  recording. 

Require  reports  and  s    \    rr\  •  1  j* 

make  examinations.  (e)   lo  require  reports  and  statements  ot 


empted. 


Refuse   authority   to 


SYSTEM   IN   OPERATION  155 

condition  and  to  make  examinations  of  all 
banks  or  associations  doing  business  under 
the  provisions  of  this  Act. 

(f)  To  prescribe  the  form  and  terms  of  te^So{ri^ndfsorm  and 
farm-loan  bonds,  and  the  form,  terms,  and 

penal  sums  of  all  surety  bonds  required  under 
this  Act  and  of  such  other  surety  bonds  as 
they  shall  deem  necessary,  such  surety  bonds 
to  cover  financial  loss  as  well  as  faithful  per- 
formance of  duty. 

(g)  To  require  Federal  land  banks  to  pay  ^j-g-j^hnd 
forthwith  to  any  Federal  land  bank  their  BlfSSSwS 
equitable  proportion  of  any  sums  advanced  another- 

by  said  land  bank  to  pay  the  coupons  of  any 
other  land  bank,  basing  said  required  pay- 
ments on  the  amount  of  farm-loan  bonds 
issued  by  each  land  bank  and  actually  out- 
standing at  the  time  of  such  requirement. 

(h)  To  suspend  or  to  remove  for  cause  any  ^^fp^k^Zm- 
district  director  or  any  registrar,  appraiser, 
examiner,  or  other  official  appointed  by  said 
board  under  authority  of  section   three  of     cause    of    removal 

J  to  be  communicated  in 

this  Act,  the  cause  of  such  suspension  or  re-  writing  to  official. 

moval    to    be    communicated    forthwith    in 

writing  by  the  Federal  Farm  Loan  Board  to 

the  person  suspended  or  removed,   and  in 

case   of   a   district   director   to   the   proper 

Federal  land  bank. 

(i)  To  exercise  general  supervisory  author-  „*££%*  K£S5gJ 

ity  over  the  Federal  land  banks,  the  national  ^onhsanks  and  ass0" 

farm-loan  associations,   and   the  joint-stock 

land  banks  herein  provided  for. 
11 


i56  THE   FEDERAL  FARM-LOAN 

Exercise  requisite  in-       (j)  To  exercise  such  incidental  powers  as 

cidental  powers.  j^    be    necessary    Qr    requisite    to    fulfill    its 

duties  and  carry  out  the  purposes  of  this  Act. 

APPLICATIONS    FOR   FARM-LOAN    BONDS 

written  application  Sec.  18.  That  any  Federal  land  bank,  or 
tondSutmadey  'through  joint-stock  bank,  which  shall  have  voted  to 
issue  farm-loan  bonds  under  this  Act,  shall 
make  written  application  to  the  Federal 
Farm  Loan  Board,  through  the  farm-loan 
registrar  of  the  district,  for  approval  of  such 

with  application,  jssue>    With  said  application  said  land  bank 

qualified   mortgages   or  **  re 

mustedbeSttaeflderebdonas  shall  tender  to  said  farm-loan  registrar  as 
greStiiS  noTies^thin"  collateral  security  first  mortgages  on  farm 
sum  of  bonds  propose  .  jancjs  quaiifie(j  under  the  provisions  of  section 

twelve,  section  fifteen,  or  section  sixteen  of 
this  Act,  or  United  States  Government  bonds, 
not  less  in  aggregate  amount  than  the  sum  of 
the  bonds  proposed  to  be  issued.  Said  bank 
SecSuCntftende™dhcdof  shall  furnish  with  such  mortgages  a  schedule 
containing  a  description  thereof  and  such 
further  information  as  may  be  prescribed  by 
the  Federal  Farm  Loan  Board. 
Registrar  must  trans-       Upon  receipt  of  such  application  said  farm- 

mit     application      and  r  sr  a  x 

Board!10 10  Farm  Loan  l°an  registrar  shall  verify  said  schedule  and 

shall    transmit    said    application    and    said 

schedule  to  the  Federal  Farm  Loan  Board, 

giving  such  further  information  pertaining 

Farm  Loan  Board  thereto  as  he  may  possess.  The  Federal  Farm 

may    grant    or    refuse 

authority  for  issuance  Loan  Board  shall  forthwith  cause  to  be  made 

after  investigation. 

such  investigation  and  appraisement  of  the 
securities  tendered  as  it  shall  deem  wise,  and 


SYSTEM   IN   OPERATION  157 

it  shall  grant  in  whole  or  in  part,  or  reject 
entirely,  such  application. 

The    Federal    Farm    Loan    Board    shall  .  Board  must  advise 

its  decision  to  registrar 

promptly  transmit  its  decision  as  to  any  issue  iini1  applicant  bank. 

of  farm-loan  bonds  to  the  land  bank  applying 

for  the  same  and  to  the  farm-loan  registrar 

of  the  district.     Said  registrar  shall  furnish,  desired  informationby 

in  writing,  such  information  regarding  any 

issue  of  farm-loan  bonds  as  the  Federal  Farm 

Loan  Board  may  at  any  time  require. 

No  issue  of  farm-loan  bonds  shall  be  author-  m  No  kxgjt  ^onds 
ized  unless  the  Federal  Farm  Loan  Board  approval  in  writing, 
shall  approve  such  issue  in  writing. 


ISSUE    OF   FARM-LOAN    BONDS 

Sec.  10.     That  whenever  any  farm  -  loan     Registrar  upon  notice 

of  approval  must  take 

registrar  shall  receive  from  the  Federal  Farm  SSSSSiIt^JSyrf 
Loan  Board  notice  that  it  has  approved  any  j£g    to    applicant 
issue  of  farm-loan  bonds  under  the  provisions 
of  section  eighteen  he  shall  forthwith  take 
such  steps  as  may  be  necessary,  in  accordance 
with  the  provisions  of  this  Act,  to  insure  the 
prompt  execution  of  said  bonds  and  the  de- 
livery of  the  same  to  the  land  bank  applying 
therefor. 
Whenever  the  Federal  Farm  Loan  Board  J?^*  rJ™?l°l 

..      ,,  .  ,-i  1*       j_*  t  bonds,      collateral     se- 

shall  reject  entirely  any  application  tor  an  curity  tendered  must  be 

„    .  A  ,  1        .1        r-  returned  forthwith. 

issue  of  farm-loan  bonds,  the  first  mortgages 
and  bonds  tendered  to  the  farm-loan  registrar 
as  collateral  security  therefor  shall  be  forth- 
with returned  to  said  land  bank  by  him. 
Whenever  the  Federal  Farm  Loan  Board 


i58  THE   FEDERAL   FARM-LOAN 

P.epistrar  to  retain  shall  approve  an  issue  of  farm-loan  bonds, 
f,i<-H  as^secuS'foi  the  farm-loan  registrar  having  the  custody  of 
tum  unyTtue^coiiat-  the  first  mortgages  and  bonds  tendered  as 
collateral  security  for  such  issue  of  bonds 
shall  retain  in  his  custody  those  first  mort- 
gages and  bonds  which  are  to  be  held  as 
collateral  security,  and  shall  return  to  the 
bank  owning  the  same  any  of  said  mort- 
gages and  bonds  which  are  not  to  be  held  by 
him  as  collateral  security.     The  land  bank 
which  is  to  issue  said  farm-loan  bonds  shall 
transfer  to  said  registrar,  by  assignment,  in 
Mortwes  and  bonds  trust,  all  first  mortgages  and  bonds  which  are 
S&^&SSfctS  to  be  held  by  said   registrar  as  collateral 
SEE?"  and  sub"  security,  said  assignment  providing  for  the 
right  of  redemption  at  any  time  by  payment 
as  provided  in  this  Act  and  reserving  the 
right  of  substitution  of  other  mortgages  quali- 
fied under  sections  twelve,  fifteen,  and  sixteen 
of  this  Act.    Said  mortgages  and  bonds  shall 
be  deposited  in  such  deposit  vault  or  bank 
collateral  deposited  as  the  Federal  Farm  Loan  Board  shall  ap- 
n?ay'a™  prove"  under  prove,   subject  to  the   control   of  said  reg- 

control   of   registrar  as    -^  ......  r  it- 

trustee,  istrar  and  m   his   name   as   trustee   tor   tne 

bank  issuing  the  farm-loan  bonds  and  for 

the  prospective   holders   of   said  farm-loan 

bonds. 

No  mortgage  ac-      No  mortgage  shall  be  accepted  by  a  farm- 

ceepPt  quailned  first  loan  registrar  from  a  land  bank  as  part  of  an 

offering  to  secure  an  issue  of  farm-loan  bonds, 

either  originally  or  by  substitution,  except 

first  mortgages  made  subject  to  the  conditions 


SYvSTEM   IN   OPERATION  159. 

prescribed  in  said  sections  twelve,  fifteen,  and 
sixteen. 

It  shall  be  the  duty  of  each  farm-loan  regis-      Registrar  to  see  out- 

■'  standing     bonds     fully 

trar  to  see  that  the  farm-loan  bonds  delivered  covered  by  collateral. 
by  him  and  outstanding  do  not  exceed  the 
amount  of  collateral  security  pledged  there- 
for.    Such  registrar  may,  in  his  discretion, 
temporarily   accept,   in   place  of   mortgages      May  temporarily  ac- 

x  .  1       cept     in      substitution 

withdrawn,  United  States  Government  bonds  united  states  bonds  or 

'  cash. 

or  cash. 

The  Federal  Farm  Loan  Board  may,  at     Farm   Loan  Board 
any    time,    call    upon    any    land    bank    for  jag**"  addlt'°"al 
additional    security    to    protect    the    bonds 
issued  by  it. 

FORM    OF    FARM-LOAN    BONDS 

Sec.  20.    That  bonds  provided  for  in  this  J^Jg*ggS: 
Act  shall  be  issued  in  denominations  of  $40,  ^Z^Zdl  tub- 
$100,  $500,  $1,000,  and  such  larger  denomi-  |g  ££-**■  after 
nations  as  the  Federal  Farm  Loan  Board  may 
authorize;   they  shall  run  for  specified  mini- 
mum and  maximum  periods,  subject  to  pay- 
ment and  retirement,  at  the  option  of  the 
land  bank,  at  any  time  after  five  years  from 
the  date  of  their  issue.      They  shall  have 

.  j  1        1       1  11  •  Interest    paid    semi- 

mterest    coupons    attached,    payable    semi-  annually  not  exceeding 

.  .  -  5  per  cent  per  annum; 

annually,  and  shall  be  issued  m  series  01  not  bonds  issued  m  sencs 

■*  not  less  than  {50,000. 

less  than  $50,000,  the  amount  and  terms  to 
be  fixed  by  the  Federal  Farm  Loan  Board. 
They  shall  bear  a  rate  of  interest  not  to  ex- 
ceed 5  per  centum  per  annum. 

The  Federal  Farm  Loan  Board  shall  pre- 


160  THE   FEDERAL   FARM-LOAN 

Rules   to  be   pre-  scribe  rules  and  regulations  concerning  the 
t^ds  may  be  retired.0    circumstances  and  manner  in  which  farm-loan 
bonds  shall  be  paid  and  retired  under  the 
provisions  of  this  Act. 

Farm-loan  bonds  shall  be  delivered  through 
the  registrar  of  the  district  to  the  bank  ap- 
plying for  the  same. 
Bonds  delivered       In  order  to  furnish  farm-loan  bonds  for 
suing  bhankglstrar  to  1S"  delivery  at  the  Federal  land  banks  and  joint- 
stock    land    banks,    the    Secretary    of    the 

Secretary  of  Treasury  # 

to  prepare  bonds  in  Treasury   is  hereby   authorized   to   prepare 

form  approved  by  r  arm  -'  •'  x 

i^rea°SS:  shu°bject,to  suitable  bonds  in  such  form,  subject  to  the 
their  order.  provisions  of  this  Act,  as  the  Federal  Farm 

Loan  Board  may  approve,  such  bonds  when 
prepared  to  be  held  in  the  Treasury  subject 
to  delivery  upon  order  of  the  Federal  Farm 
Loan  Board.  The  engraved  plates,  dies,  bed- 
pieces,  and  so  forth,  executed  in  connection 
therewith  shall  remain  in  the  custody  of  the 
secretary  must  retain  Secretary  of  the  Treasury.  Any  expenses  in- 
eSenLsf  connected  curred  in  the  preparation,  custody,  and  de- 

with  issuance  of  bonds;    ,.  .  ici  1  11111  •  1 

reimbursed   by   Farm  livery  of  such  farm-loan  bonds  shall  be  paid 

Loan     Board     through    ,'.,_,  r    ,  1         rr>  r 

proportional  assessment  £>v  the  Secretary  of  the   ireasury  from  any 

against  banks.  j  j 

funds  in  the  Treasury  not  otherwise  appro- 
priated: Provided,  however,  That  the  Secre- 
tary shall  be  reimbursed  for  such  expenditures 
by  the  Federal  Farm  Loan  Board  through 
assessment  upon  the  farm-land  banks  in  pro- 
portion to  the  work  executed.  They  may  be 
,  .     exchanged    into    registered    bonds    of    any 

Bonds  exchanged  in-  °  " 

to  registered  bonds  and  amount,  and  re-exchanged  into  coupon  bonds, 

re-excnanged  into  cou-  °  x 

op?ion?nds  at  holders  at  the  option  of  the  holder,  under  rules  and 


SYSTEM   IN   OPERATION  i6r 


regulations  to  be  prescribed  by  the  Federal 
Farm  Loan  Board. 


SPECIAL   PROVISIONS    OF   FARM-LOAN   BONDS 

Sec.  21.     That  each  land  bank  shall  be 

issuance  of  bonds. 


Land  bank  is  bound 

bound  in  all  respects  by  the  acts  of  its  officers  Ly  issuance  of^bon'ds.6'3 
in  signing  and  issuing  farm-loan  bonds,  and 
by  the  acts  of  the  Federal  Farm  Loan  Board 
in  authorizing  their  issue. 

Every  Federal  land  bank  issuing  farm-loan      Ferleral   land  b 
bonds  shall  be  primarily  liable  therefor,  and  ^.T^iL- a'i!abier  for 
shall  also  be  liable,  upon  presentation  of  farm-  issu^of^otTio^bank" 

-  1  *  r         .  1  and     for     principal     of 

loan  bond  coupons,  ior  interest  payments  due  farm-loan  bonds  issued 

by   any   other   Federal 

upon  any  farm-loan  bonds  issued  by  other  land  bankv  aftfir  asse<-s 

c  •>  J  are  exhausted. 

Federal  land  banks  and  remaining  unpaid  in 
consequence  of  the  default  of  such  other  land 
banks ;  and  every  such  bank  shall  likewise  be 
liable  for  such  portion  of  the  principal  of  farm- 
loan  bonds  so  issued  as  shall  not  be  paid 
after  the  assets  of  any  such  other  land  banks 
shall  have  been  liquidated  and  distributed: 
Provided,  That  such  losses,  if  any,  either  of     Lossf  •  if  any;  as 

'  J  '  guarantors  assessed  pro 

interest  or  of  principal,  shall  be  assessed  by  ^baieagaiIlst  aU  banks 
the  Federal  Farm  Loan  Board  against  sol- 
vent land  banks  liable  therefor  in  proportion 
to  the  amount  of  farm-loan  bonds  which  each 
may  have  outstanding  at  the  time  of  such 
assessment. 

Every  Federal  land  bank  shall  by  appro-     Minutes  of  Federal 

land   bank  must   show 

pnate  action  of  its  board  of  directors,  duly  liability  as  guarantor. 
recorded  in  its  minutes,   obligate  itself  to 


162  THE   FEDERAL   FARM-LOAN 

become  liable  on  farm-loan  bonds  as  provided 
in  this  section. 
Each  farm-ioan  bond       Every  farm-loan  bond  issued  by  a  Federal 
president  or  vice  presi-  land  bank  shall  be  signed  by  its  president  or 

dent   and   secretary   or  . 

unstant  secretary  of  vice  president  and  attested  by  its  secretary 

imminj;      1-cderal      land  -l  J  J 

!rnmcatelufromC°i';arm  or  assistant  secretary.  For  the  purpose  of 
l^cifyinne'rtain'pro-  signing  such  bonds  the  board  of  directors  of 
any  Federal  land  bank  is  authorized  to  select 
a  vice  president  who  need  not  be  a  member 
of  the  board  of  directors;  such  bonds  shall 
also  contain  in  the  face  thereof  a  certificate 
signed  by  the  Farm  Loan  Commissioner  to 
the  effect  that  it  is  issued  under  the  authority 
of  the  Federal  Farm  Loan  Act,  has  the  ap- 
proval in  form  and  issue  of  the  Federal  Farm 
Loan  Board,  and  is  legal  and  regular  in  all 
respects;  that  it  is  not  taxable  by  National, 
State,  municipal,  or  local  authority;  that  it 
is  issued  against  collateral  security  of  United 
States  Government  bonds,  or  indorsed  first 
mortgages  on  farm  lands,  at  least  equal  in 
amount  to  the  bonds  issued;  and  that  all 
Federal  land  banks  are  liable  for  the  payment 
of  each  bond. 

APPLICATION  OF  AMORTIZATION  AND  INTEREST 
PAYMENTS 

Registrar  notified  cf       Sec.  22.    That  whenever  any  Federal  land 

collections     mad'-      on  .  11111111 

pledged  mortgages.  bank,  or  jomt-stock  land  bank,  shall  receive 
any  interest,  amortization,  or  other  payments 
upon  any  first  mortgage  or  bond  pledged  as 
collateral  security  for  the  issue  of  farm-loan 


SYSTEM  IN  OPERATION  163 

bonds,  it  shall  forthwith  notify  the  farm- 
loan  registrar  of  the  items  so  received.    Said     Registrar  must  sen 

o  such    payments    1  >i .  .1 .  - 

registrar  shall  forthwith  cause  such  payment  eri^cre^ted^d^an- 
to  be  duly  credited  upon  the  mortgage  en-  £\^^  *gig 
titled  to  such  credit.     Whenever  any  such  ^d'^h;"^  lleu  "' 
mortgage  is  paid  in  full,  said  registrar  shall 
cause  the  same  to  be  canceled  and  delivered 
to  the  proper  land  bank,  which  shall  promptly 
satisfy  and  discharge  the  lien  of  record  and 
transmit  such  canceled  mortgage  to  the  orig- 
inal maker  thereof,  or  his  heirs,  administra- 
tors, executors,  or  assigns. 

Upon  written  application  by  any  Federal     collateral  bonds  and 

.     ,  1      1  1    1  1  j.1_        mortgages  may  be  sul>- 

land  bank,  or  lomt-stock  land  bank,  to  tne  stituted    by    similar 

'  "*  .  ,        mortgages     or     United 

farm-loan  registrar,  it  may  be  permitted,  in  statesjxmds  of  s""lkir 

the  discretion  of  said  registrar,  to  withdraw 

any  mortgages  or  bonds  pledged  as  collateral 

security  under  this  Act,   and  to  substitute 

therefor  other  similar  mortgages  or  United 

States  Government  bonds  not  less  in  amount 

than  the  mortgages  or  bonds  desired  to  be 

withdrawn. 

Whenever  any  farm-loan  bonds,  or  cou-     Matured  bonds  and 
pons  or  interest  payments  of  such  bonds,  are  J^gg  *&££?** 
due  under  their  terms,  they  shall  be  payable 
at  the  land  bank  by  which  they  were  issued, 
in  gold  or  lawful  money,  and  upon  payment 
shall  be  duly  canceled  by  said  bank.    At  the 
discretion  of  the  Federal  Farm  Loan  Board,  Jft.iSJSWSJ 
payment  of  any  farm-loan  bond  or  coupon  or  g^  ol  Farm  Loan 
interest  payment  may,  however,  be  author- 
ized to  be  made  at  any  Federal  land  bank,  any 


i64  THE   FEDERAL  FARM-LOAN 

joint-stock  land  bank,   or  any  other  bank, 
under  rules  and  regulations  to  be  prescribed 
by  the  Federal  Farm  Loan  Board. 
Land    banks    may       When  any  land  bank  shall  surrender  to  the 

withdraw   pledged  " 

S°rtequfeais  ^mounT^of  Pr0Per    farm-loan    registrar    any    farm-loan 
scnTs"!oan  bonds  °f  any  bonds  of  any  series,  canceled  or  uncanceled, 
said  land  bank  shall  be  entitled  to  withdraw 
first   mortgages  and   bonds  pledged  as  col- 
lateral security  for  any  of  said  series  of  farm- 
loan  bonds  to  an  amount  equal  to  the  farm- 
loan  bonds  so  surrendered,  and  it  shall  be 
the  duty  of  said  registrar  to  permit  and  direct 
the  delivery  of  such  mortgages  and  bonds  to 
such  land  bank, 
interest  collected  on       Interest  payments  on  hypothecated  first 
available  to  land  bank  mortgages  shall  be  at  the  disposal  of  the  land 

for  payment  of  interest  ° 

on  bonds.  bank  pledging  the  same,  and  shall  be  avail- 

able for  the  payment  of  coupons  and  the 
interest  of  farm-loan  bonds  as  they  become 

due. 

Fuii  amount  of  inter-       Whenever  any  bond  matures,  or  the  inter- 
est must  be  paid  when  ..........  , 

due.  on  presentation  of  est  on  any  registered  bond  is  due,  or  the 

coupons     where     made 

payable.  coupon  or  any  coupon  bond  matures,  and  the 

same  shall  be  presented  for  payment  as  pro- 
vided in  this  Act,  the  full  face  value  thereof 
shall  be  paid  to  the  holder. 
Payments    collected       Amortization  and  other  payments  on  the 

on    pledged    mortgages  ..        r    ~  t_    1  j    1  . 

held  in  trust.  principal  of  first  mortgages  held  by  a  farm- 

loan  registrar  as  collateral  security  for  the 
issue  of  farm-loan  bonds  shall  constitute  a 
trust  fund  in  the  hands  of  the  Federal  land 
bank  or  joint-stock  land  bank  receiving  the 


SYSTEM   IN   OPERATION  165 

same,  and  shall  be  applied  or  employed  as 
follows : 

In  the  case  of  a  Federal  land  bank —  _  Must  be  applied  by  a 

Federal  kino   bank — 

(a)  To  pay  off  farm-loan  bonds  issued  by  bo^s  cancd  its  own 
said  bank  as  they  mature. 

(b)  To  purchase  at  or  below  par  farm-loan 

bonds  issued  by  said  bank  or  by  any  other  fam-ioanCbondsFederal 
Federal  land  bank. 

(c)  To  loan  on  first  mortgages  on  farm     to  lend   on   farm 

N    '  00  ]ands     Wltmn     district 

lands  within  the  land-bank  district,  qualified  «p°n  fi«t  mortgages. 
under  this  Act  as  collateral  security  for  an 
issue  of  farm-loan  bonds. 

(d)  To  purchase  United  States  Govern-  boSabuyUflitedStatea 
ment  bonds. 

In  the  case  of  a  joint-stock  land  bank —         joint-stock  land 

.  banks  must  apply  such 

(a)  To  pay  off  farm-loan  bonds  issued  by  collections— 

*    »  *     »  ■*  10    cancel    its    own 

said  bank  as  they  mature.  bonds- 

(b)  To  purchase  at  or  below  par  farm-loan  loa^°boiXhase  farm" 
bonds. 

(c)  To  loan  on  first  mortgages  qualified  lands  within  stated 

i  .  .  -      ,   .        .  one  other  State,   upon 

under  section  sixteen  01  this  Act.  qualified    first    mort- 

(d)  To  purchase  United  States  Govern-     ToW  united  states 
ment  bonds. 

The    farm-loan    bonds,    first    mortgages,  JgJgSU'SS 
United  States  Government  bonds,  or  cash  fsetr£rneas  °I5b&SSi 
constituting  the  trust  fund  aforesaid,  shall  be  c0  atera ' 
forthwith  deposited  with  the  farm-loan  regis- 
trar as  substituted  collateral  security  in  place 
of  the  sums  paid  on  the  principal  of  indorsed 
mortgages  held  by  him  in  trust.  RfigistraT musrt be no. 

Every  Federal  land  bank,  or  joint-stock  ff-J^S^Sfid 
land  bank,  shall  notify  the  farm-loan  regis-  -pnncipai  of  pledged. 


1 66  THE   FEDERAL  FARM-LOAN 

mortgages;  may  take  trar  of  the  disposition  of  all  payments  made 
S  as^stel  of  the  on  the  principal  of  mortgages  held  as  col- 
lateral security  for  an  issue  of  farm-loan 
bonds,  and  said  registrar  is  authorized,  at  his 
discretion,  to  order  any  of  such  payments,  or 
the  proceeds  thereof,  wherever  deposited  or 
however  invested,  to  be  immediately  trans- 
ferred to  his  account  as  trustee  aforesaid. 

RESERVES    AND    DIVIDENDS    OF    LAND    BANKS 

Twenty-five  per  cent       Sec.  2%.    That  every  Federal  land  bank, 

of  nc!   earnings  of  land  "     #     g 

bank  semiannually  re-  anc[  every  lomt-stock  land  bank,  shall  semi- 

tained   as   reserve  fund  J     •> 

2otil  *<»fo?awitd  annually  carry  to  reserve  account  twenty- 
st-ck  .3  accumulated.     fiye  per  centum  0f  j^g  net  earnings  until  said 

reserve  account  shall  show  a  credit  balance 

equal  to  twenty  per  centum  of  the  outstanding 

it  reserve  is  impaired,  capital  stock  of  said  land  bank.     Whenever 

must  be  restored  before  *  .  . 

dividends  are  paid.        sai(}  reserve  shall  have  been  impaired,  said 

balance  of  twenty  per  centum  shall  be  fully 

After  70  per  cent  re-  restored  before  any  dividends  are  paid.  After 

Pee7ce5t "tfSSELS  said  reserve  has  reached  the  sum  of  twenty 

earnings  added.  per  centum  of  the  outstanding  capital  stock, 

five  per  centum  of  the  net  earnings  shall  be 
J .     annually  added  thereto.     For  the  period  of 

If  mortgagor  and  in-  *  * 

dorser  default,  amount  ^wo  years  from  the  date  when  any  default 

defaulted      carried      in  J  J 

stwopeyearS  tXre  Wng  occurs  in  the  payment  of  the  interest,  amorti- 
debited  to  reserve.  zation  installments,  or  principal  on  any  first 
mortgage,  by  both  mortgagor  and  indorser, 
the  amount  so  defaulted  shall  be  carried  to  a 
suspense  account,  and  at  the  end  of  the  two- 
year  period  specified,  unless  collected,  shall 
be  debited  to  reserve  account. 


SYSTEM   IN   OPERATION  167 

After  deducting  the  twenty-five  per  centum      Dividends  may  be 

declared  i'rutn  net  ea  — 
ings    after    reserve 
cjuirements  are  met. 


.    «     r  -1 .  t    declared  from  net  earn- 

or  the  five  per  centum  herein Ijci ore  tlirccted  ings  after  reserve  re- 

*  n  1 1 1  r  f  •  m  r*  n  t  a 


to  be  deducted  for  credit  to  reserve  account, 
any  Federal  land  bank  or  joint-stock  land 
bank  may  declare  a  dividend  to  shareholders 
of  the  whole  or  any  part  of  the  balance  of  its 
net  earnings.  The  reserves  of  land  banks 
shall  be  invested  in  accordance  with  rules  and 

1        _    j         .        Farm     Loan     Board 

regulations  to  be  prescribed  by  the  federal  must  direct  investment 

&  x  -  of  reserve  fund. 

Farm  Loan  Board. 

RESERVE  AND  DIVIDENDS  OF  NATIONAL  FARM 
LOAN   ASSOCIATIONS 

Sec.  24.     That  every  national  farm-loan     Ten  per  cent  of  net 

.     .  .  earnings    of    farm-loan 

aSSOCiatlOn     Shall,      OUt     OI     ltS      net     earnings,     associations    semiannu- 
ally retained  as  reserve 

semi-annually  carry   to    reserve   account  a  fund  until  it  amounts 

J  J  to  20  per  cent  of  capital 

sum  not  less  than  ten  per  centum  of  such  stock- 
net   earnings  until  said  reserve  account  shall 
show  a  credit  balance  equal  to  twenty  per 
centum  of  the  outstanding  capital  stock  of 
said  association. 

Whenever  said  reserve  shall  have  been  im-  ,  if  impaired,  restored 

before     dividends     are 

paired,    said   credit   balance   of   twenty   per  !»»<*. 
centum  shall  be  fully  restored  before  any 
dividends  are  paid.     After  said  reserve  has  J^  l^j&SSSd* 
reached  said  sum  of  twenty  per  centum,  two  earnings  added!1113 
per  centum  of  the  net  earnings  shall  be  annu- 
ally added  thereto. 

After  deducting  the  ten  per  centum  or  the  a^SfS^SSS 
two  per  centum  hereinbefore  directed  to  be  «*e™e  requirement* 
credited  to  reserve  account,  said  association 
may,  at  its  discretion,  declare  a  dividend  to 


168  THE   FEDERAL   FARM-LOAN 

shareholders  of  the  whole  or  any  part  of  the 
balance  of  said  net  earnings. 
Farm  Loan   Boar.i       The    reserves    of    farm-loan    associations 

directs    investment    of.  . 

reserve  fund.  shall  be  invested  m  accordance  with  rules  and 

regulations  to  be  prescribed  by  the  Federal 
Farm  Loan  Board. 
Reserve  fund  paid       Whenever  any  farm-loan  association  shall 

bank  in*  case :  o?  voiun-  be  voluntarily  liquidated  a  sum  equal  to  its 

tary  liquidation  .  '        *  .  •        -i       1      11    1 

reserve  account  as  herein  required  shall  be 
paid  to  and  become  the  property  of  the  Fed- 
eral land  bank  in  which  such  loan  association 
may  be  a  shareholder. 

DEFAULTED    LOANS 

indorser  on  first       Sec.  25.  That  if  there  shall  be  default  under 
^f?edgogfesanTdefauHsl  the  terms  of  any  indorsed  first  mortgage  held 

may  be  required  within     .  i-i     1  1   i  1   i  1  ij_i  •    • 

30  days  to  pay  same  in  by  a  F  ederal  land  bank  under  the  provisions 

cash    or    in    bonds    of  .  .,.  -  .. 

holding  bank.  of  this  Act,  the  national  farm-loan  association 

or  agent  through  which  said  mortgage  was 
received  by  said  Federal  land  bank  shall  be 
notified  of  said  default.  Said  association  or 
agent  may  thereupon  be  required,  within 
thirty  days  after  such  notice,  to  make  good 
said  default,  either  by  payment  of  the  amount 
unpaid  thereon  in  cash,  or  by  the  substitution 
of  an  equal  amount  of  farm-loan  bonds  issued 
by  said  land  bank,  with  all  unmatured  cou- 
pons attached. 

exemption  from  taxation 
_   .. ,       ,  .     ,       Sec.  26.    That  every  Federal  land  bank 

Capital,  surplus,  and  J 

iladdebank30LdFeflrm-  and  every  national  farm-loan  association,  in- 


SYSTEM   IN   OPERATION  169 

•      ■••  .4  . .    1  1  1  loan    cssociationa    ex- 

cluding the  capital  and   reserve  or  surplus  emPt  from  taxes,  «- 

.,  .  «     .  1  ■  i-iii  r  cept  on  real  estate. 

therein  and  the  income  derived  therelrom, 
shall  be  exempt  from  Federal,  State,  munic- 
ipal, and  local  taxation,  except  taxes  upon 
real  estate  held,  purchased,  or  taken  by  said 
bank  or  association  under  the  provisions  of 
section  eleven  and  section  thirteen  of  this 
Act.     First  mortgages  executed  to  Federal      Mort(TaRes  and  farm- 

..  11111  loan   bonds   instrumen- 

land  banks,   or  to   iomt-stock  land  banks,  taiities  of  the  Govem- 

J  ment  and  exempt  from 

and  farm-loan  bonds  issued  under  the  pro-  taxation,  including  in- 

r  come  therefrom. 

visions  of  this  Act,  shall  be  deemed  and  held 
to  be  instrumentalities  of  the  Government 
of  the  United  States,  and  as  such  they  and 
the  income  derived  therefrom  shall  be  exempt 
from  Federal,  State,  municipal,  and  local 
taxation. 

Nothing  herein  shall  prevent  the  shares  in  JJSggft&JK 
any  joint-stock  land  bank  from  being  in-  ^J^SSbSST 
eluded  in  the  valuation  of  the  personal  prop- 
erty of  the  owner  or  holder  of  such  shares, 
in  assessing  taxes  imposed  by  authority  of 
the  State  within  which  the  bank  is  located; 
but  such  assessment  and  taxation  shall  be 
in  manner  and  subject  to  the  conditions  and 
limitations  contained  in  section  fifty-two 
hundred  and  nineteen  of  the  Revised  Stat- 
utes with  reference  to  the  shares  of  national 
banking  associations. 

Nothing  herein  shall  be  construed  to  ex-  J^£3»2^K 
empt  the  real  property  of  Federal  and  joint-  f^fX*5  other  real 
stock   land   banks    and    national   farm-loan 
associations   from   either   State,    county,    or 


i7o  THE   FEDERAL  FARM-LOAN 

municipal  taxes,  to  the  same  extent,  accord- 
ing to  its  value,  as  other  real  property  is 
taxed. 

INVESTMENT    IN    FARM-LOAN    BONDS 

Farm  loan     bonds       Sec.  27.  That  farm-loan  bonds  issued  under 

Sf^trust "ESS?  and  the  provisions  of  this  Act  by  Federal  land 

fJr'pubiic  deposits""17  banks  or  joint-stock  land  banks  shall  be  a 

lawful  investment  for  all  fiduciary  and  trust 

funds,  and  may  be  accepted  as  security  for 

all  public  deposits. 

„    .     ,    .        ,       Any  member  bank  of  the  Federal  Reserve 

Member   banks   mav  J 

bonVr1  sdl  farm"loan  System  may  buy  and  sell  farm-loan  bonds 
issued  under  the  authority  of  this  Act. 
Federal  Reserve       Any  Federal  reserve  bank  may  buy  and 
farmfoTn  bonds  having  sell  f  arm-loan  bonds  issued  under  this  Act  to 

maturity  not  exceeding  . 

six  months.  the  same  extent  and  subject  to  the  same 

limitations  placed  upon  the  purchase  and  sale 
by  said  banks  of  State,  county,  district,  and 
municipal  bonds  under  subsection  (b)  of  sec- 
tion fourteen  of  the  Federal  reserve  Act  ap- 
proved December  twenty-third,  nineteen 
hundred  and  thirteen. 

EXAMINATIONS 

Farm  Loan  Board  Sec.  28.  That  the  Federal  Farm  Loan 
fani^annk%xaernmsera.ry  Board  shall  appoint  as  many  land-bank  ex- 
aminers as  in  its  judgment  may  be  required 
to  make  careful  examinations  of  the  banks 
and  associations  permitted  to  do  business 
under  this  Act. 

Said  examiners  shall  be  subject  to  the  same 


SYSTEM   IN   OPERATION 


i/i 


requirements,  responsibilities  and  penalties  Land  bank  exam- 
as  are  applicable  to  national  bank  examiners  requirements1  assanae 
under  the  national  bank  Act,   the  Federal 


Examiners  subject  to 
control  of  Farm  Loan 
Board. 


Examiners'      salaries 
fixed    by    Farm    Loan 


Reserve  Act  and  other  provisions  of  law. 
Whenever  directed  by  the  Federal  Farm  Loan 
Board,  said  examiners  shall  examine  the  con- 
dition of  any  national  farm-loan  association 
and  report  the  same  to  the  Farm  Loan  Com-      Reports  made  to  the 

mi  1      11  •  1  ,     Farm     Loan     Commi::- 

missioner.      lney  shall  examine  and  report  sioner  semiannually  or 
the  condition  of  every  Federal  land   bank 
and  joint-stock  land  bank  at  least  twice  each 
year. 

Said  examiners  shall  receive  salaries  to  be 
fixed  by  the  Federal  Farm  Loan  Board.  £ 

DISSOLUTION  AND  APPOINTMENT  OF  RECEIVERS 

Sec.  2q.    That  upon  receiving  satisfactory     Farm   Loan   Board 

*  °  ■*      may    appoint    receiver 

evidence  that  any  national  farm-loan  asso-  f?r  any  defaulting  asso- 

*  ciation. 

ciation  has  failed  to  meet  its  outstanding 
obligations  of  any  description  the  Federal 
Farm  Loan  Board  may  forthwith  declare 
such  association  insolvent  and  appoint  a  re- 
ceiver and  require  of  him  such  bond  and 
security  as  it  deems  proper:    Provided,  That     n    ..  . 

*  it       sr  i  Provided      minimum 

no  national  farm-loan   association   shall  be  SSrSlhirtSSSooo 
declared  insolvent  by  said  board  until  the  j£tio^£  ttZtbt 
total  amount  of  defaults  of  current  interest  yond  two  years- 
and  amortization  installments  on  loans  in- 
dorsed   by   national   farm-loan    associations 
shall  amount  to  at  least  $150,000  in  the  Fed- 
eral land-bank  district,  unless  such  associa- 
tion shall  have  been  in  default  for  a  period 
12 


I72  THE   FEDERAL   FARM-LOAN 

of  two  years.  Such  receiver,  under  the  direc- 
tion of  the  Federal  Farm  Loan  Board,  shall 
take  possession  of  the  books,  records,  and 

Receiver    takes    pos-  ....  .  . 

session  of  and  collects  assets  of  every  description  01  such  associa- 

all   assets   of   defaulted  "J  . 

association.  tion,  collect  all  debts,  dues,  and  claims  be- 

longing to  it,  and,  with  the  approval  of  the 
Federal  Farm  Loan  Board,  or  upon  the  order 
of  a  court  of  record  of  competent  jurisdiction, 
may  sell  or  compound  all  bad  or  doubtful 

May    sell    or    com-  ,  .,  fi  1  j 

pound  bad  or  doubtful  debts,   and,   on  a   like   approval   or   order, 

debts  and  sell  all  prop-  nn,  i  i  1 

crty  under  direction  of  mav  sen  an  the  real  and  personal  property 

court    or    Farm    Loan  ■*  « 

Board-  of  such   association,  on  such  terms   as  the 

Federal  Farm  Loan  Board  or  said  court  shall 
direct, 
collections  from  as-       Such  receiver  shall  pay  over  all  money  so 

sets  of  defaulted   asso-  ..  1  ,,  ^  r     ..  1  TT     •,      i 

Nations  deposited  with  collected   to   the    treasurer   01    the    United 

United     States     Treas-  1  r       1         t>     1  1 

urcr;  receiver  reports  States,  subject  to  the  order  oi  the  rederal 

proceedings     to     Farm 

Loan  Board.  Farm  Loan  Board,  and  also  make  report  to 

said  board  of  all  his  acts  and  proceedings. 
The  Secretary  of  the  Treasury  shall  have 
authority  to  deposit  at  interest  any  money 
so  received. 
Land  banks  similarly       Upon  default  of  any  obligation,  Federal 

placed  in  hands  of  re-  ■*■  .    m  111  11 

ceiver  upon  default.  land  banks  and  joint-stock  banks  may  be  de- 
clared insolvent  and  placed  in  the  hands  of  a 
receiver  by  the  Federal  Farm  Loan  Board, 
and  proceedings  shall  thereupon  be  had  in 
accordance  with  the  provisions  of  this  section 
regarding  national  farm-loan  associations. 

In  C3.sc  of  insolvency 

and  receivership  stock       if  any  national  farm-loan  association  shall 

held  by  association   m  J 

land    bank    canceled  ke  declared  insolvent  and  a  receiver  shall  be 

and    proceeds    used    to 

FederarKbank.  to  appointed  therefor  by  the  Federal  Farm  Loan 


SYSTEM   IN   OPERATION  173 

Board,  the  stock  held  by  it  in  the  Federal 
land  bank  of  its  district  shall  be  canceled 
without  impairment  of  its  liability  and  all 
payments  on  such  stock,  with  accrued  divi- 
dends, if  any,  since  the  date  of  the  last  divi- 
dend shall  be  first  applied  to  all  debts  of  the 
insolvent  farm-loan  association  to  the  Fed- 
eral land  bank,  and  the  balance,  if  any,  shall 
be  paid  to  the  receiver  of  said  farm-loan  as- 
sociation:  Provided,  That  in  estimating  said     contingent  liability 

0  as  endorser  on  defaulted 

debts  contingent  liabilities  incurred  by  na-  n*KSadS" 
tional  farm-loan  associations  under  the  pro-  ^fdedubcytedToernmpero- 
visions  of  this  Act  on  account  of  default  of  ceeds  of  canceled  stock- 
principal  or  interest  of  indorsed  mortgages 
shall  be  estimated  and  included  as  a  debt, 
and  said  contingent  liabilities  shall  be  deter- 
mined by  agreement  between  the  receiver 
and  the  Federal  land  bank  of  the  district, 
subject  to  the  approval  of  the  Federal  Farm 
Loan  Board,  and  if  said  receiver  and  said 
land  bank  cannot  agree,  then  by  the  decision 
of  the  Farm  Loan  Commissioner,  and  the 
amount  thus  ascertained  shall  be  deducted 
in  accordance  with  the  provisions  of  this  sec- 
tion from  the  amount  otherwise  due  said 
national  farm-loan  association  for  said  can- 
celed stock.  Whenever  the  capital  stock  of 
a  Federal  land  bank  shall  be  reduced,  the     Reduction  of  stock 

by   Federal   land   bank 

board  of  directors  shall  cause  to  be  executed  reported,  and  specifi- 
cally  amount   paid 

a  certificate  to  the  Federal  Farm  Loan  Board,  ^"SS^TSSJi 
showing  such  reduction  of  capital  stock,  and,  tion- 
if  said  reduction  shall  be  due  to  the  insol- 


I74  THE   FEDERAL   FARM-LOAN 

vcncy  of  a  national  farm-loan   association, 
the  amount  repaid  to  such  association. 
Farm  Loan  Board       No  national  farm-loan  association,  Federal 
sent  for  voluntary  Hqui-  land  bank  or  joint-stock  bank  shall  go  into 
voluntary   liquidation   without    the   written 
Loan  associations  consent  of  the  Federal  Farm  Loan  Board, 
LTtLTy ofFarmToan  but  national  farm-loan  associations  may  con- 
Board-  solidate  under  rules  and  regulations  promul- 

gated by  the  Federal  Farm  Loan  Board. 


Laws   of   several 


STATE    LEGISLATION 

Sec.  30.    That  it  shall  be  the  duty  of  the 
states  examined  into  by  Farm  Loan  Commissioner  to  make  examina- 

commissioner  and  r  arm 

^cahiaiTg?veaad1aSte  tion  of  the  laws  of  every  State  of  the  United 
^stmo^i'o^miandl  States  and  to  inform  the  Federal  Farm  Loan 

within  each  State.  -^^    ^   rapidly    ag   may   be    whether   in    his 

judgment  the  laws  of  each  State  relating  to 
the  conveying  and  recording  of  land  titles, 
and  the  foreclosure  of  mortgages  or  other  in- 
struments   securing    loans,   as   well    as   pro- 
viding homestead  and  other  exemptions  and 
granting  the  power  to  waive  such  exemptions 
as  respects  first  mortgages,  are  such  as  to 
assure  the  holder  thereof  adequate  safeguards 
against  loss  in  the  event  of  default  on  loans 
secured  by  any  such  mortgages. 
moBrtga2esnineii^bTe,aas       Pending  the  making  of  such  examination 
S^endingasuchloeT-  in  the  case  of  any  State,  the  Federal  Farm 
faws" of°any  state  give  Loan  Board  may  declare  first  mortgages  on 
may  make  mortgages  farm  lands  situated  within  such  State  in- 

therein    ineligible    dur-  t 

ing  continuance  of  ob-  eligible  as  the  basis  for  an  issue  of  farm-loan 

jectionable  laws.  ° 

bonds;   and  if  said  examination  shall  show 


SYSTEM   IN  OPERATION  17s 

that  the  laws  of  any  such  State  afford  in- 
sufficient protection  to  the  holder  of  first 
mortgages  of  the  kinds  provided  in  this  Act, 
said  Federal  Farm  Loan  Board  may  declare 
said  first  mortgages  on  land  situated  in  such 
state  ineligible  during  the  continuance  of  the 
laws  in  question.  In  making  his  examina- 
tion of  the  laws  of  the  several  States  and     commissioner    may 

.  .  .  .1T-,  risk   advice   from   olliee 

forming  his  conclusions  thereon  said  r  arm  of  Attorney  General  or 

0  employ  special  counsel 

Loan  Commissioner  may  call  upon  the  office  in  anv  State. 
of  the  Attorney  General  of  the  United  States 
for  any  needed  legal  advice  or  assistance,  or 
may  employ  special  counsel  in   any  State 
where  he  considers  such  action  necessary. 

At  the  request  of  the  Executive  of  any     Executive    of    any 

State    may   require 

State  the  Federal  Farm  Loan  Board  shall  f»™  Loan  Board  to 

state    wherein    its    re- 

prepare  a  statement  setting  forth  in  what  ^™rthstate!aws!ri" 
respects  the  requirements  of  said  board  can- 
not be  complied  with  under  the  existing  laws 
of  such  State. 

PENALTIES 

Sec.  31.    That  any  applicant  for  a  loan  -J^XtT^Z: 
under  this  Act  who  shall  knowingly  make  ^g^SSSToJS 
any  false  statement  in  his  application  for  ?£T°n  sha11  be  pun" 
such  loan,  and  any  member  of  a  loan  com- 
mittee or  any  appraiser  provided  for  in  this 
Act  who  shall  willfully  overvalue  any  land 
offered  as  security  for  loans  under  this  Act, 

"  Examiner     who     ac- 

shall  be  punished  by  a  fine  of  not  exceeding  <*&*  *J™g  lJrSI"tai2 
$5,000,  or  by  imprisonment  not  exceeding  ^aiTbce5unisheTvith' 
one  year,  or  both.    Any  examiner  appointed 


i76  THE  FEDERAL  FARM-LOAN 

under  this  Act  who  shall  accept  a  loan  or 
gratuity  from  any  land  bank  or  national 
farm-loan  association  examined  by  him,  or 
from  any  person  connected  with  any  such 
bank  or  association  in  any  capacity,  shall  be 
punished  by  a  fine  of  not  exceeding  $5,000, 
or  by  imprisonment  not  exceeding  one  year, 
or  both,  and  may  be  fined  a  further  sum 
equal  to  the  money  so  loaned  or  gratuity 
given,  and  shall  forever  thereafter  be  dis- 
qualified from  holding  office  as  an  examiner 

No  examiner  can  per-    uncler  the  provisions  of  this  Act.       No  exam- 
form   other  service   lor  -t 

;:;,n^nrlfn0Vo0nnec"ekd  iner,  while  holding  such  office,  shall  perform 

WIth,t-  any  other  service  for  compensation  for  any 

bank  or  banking  or  loan  association,  or  for 

any    person    connected    therewith    in    any 

capacity. 

Penalty  prescribed       Any  pers0n  who  shall  falsely  make,  forge, 

for  torgery  and  counter-  J     sr  •/  " 

felting-  or  counterfeit,   or  cause  or  procure  to  be 

falsely  made,  forged,  or  counterfeited,  or 
willingly  aid  or  assist  in  falsely  making,  forg- 
ing, or  counterfeiting  any  bond,  coupon,  or 
paper  in  imitation  of,  or  purporting  to  be 
in  imitation  of,  the  bonds  or  coupons  issued 
by  any  land  bank  or  national  farm-loan  as- 
sociation, now  or  hereafter  authorized  and 
acting  under  the  laws  of  the  United  States; 
or  any  person  who  shall  pass,  utter,  or  pub- 
lish, or  attempt  to  pass,  utter,  or  publish 
For  uttering  false  or  any  false,  forged,  or  counterfeited  bond,  cou- 

forged  instrument.  J  ° 

pon,  or  paper  purporting  to  be  issued  by  any 
such  bank  or  association,  knowing  the  same 


SYSTEM   IN   OPERATION  177 

to  be  falsely  made,  forged,  or  counterfeited; 
or  whoever  shall  falsely  alter,  or  cause  or 
procure  to  be  falsely  altered,  or  shall  willingly      For  altering  same  or 

..  willingly  aiding  therein. 

aid  or  assist  in  falsely  altering  any  such  bond, 
coupon,  or  paper,  or  shall  pass,  utter,  or 
publish  as  true  any  falsely  altered  or  spurious 
bond,  coupon,  or  paper  issued,  or  purporting 
to  have  been  issued,  by  any  such  bank  or 
association,  knowing  the  same  to  be  falsely 
altered  or  spurious,  shall  be  punished  by  a 
fine  of  not  exceeding  $5,000  or  by  imprison- 
ment not  exceeding  five  years,  or  both. 

Other  than  the  usual  salary  or  director's      No  compensation  ai- 
fee  paid  to  any  officer,  director,  or  employee  onT  employed  by  land 

r  .  ■•    r  1  ...  t-\-ii     bank  or  association  ex- 

ot  a  national  farm-loan  association,  a  rederal  cept  usual  salary  or  fee. 
land  bank,  or  a  joint-stock  land  bank,  and 
other  than  a  reasonable  fee  paid  by  such  as- 
sociation or  bank  to  any  officer,  director, 
attorney,  or  employee  for  services  rendered, 
no  officer,  director,  attorney,  or  employee  of 
an  association  or  bank  organized  under  this 
Act  shall  be  a  beneficiary  of  or  receive, 
directly  or  indirectly,  any  fee,  commission, 
gift,  or  other  consideration  for  or  in  connec- 
tion with  any  transaction  or  business  of  such  eJ^^  mayk  make 
association  or  bank.  No  land  bank  or  na-  sScfficauyepauthorSS 
tional  farm-loan  association  organized  under 
this  Act  shall  charge  or  receive  any  fee,  com- 
mission, bonus,  gift,  or  other  consideration 
not  herein  specifically  authorized.    No  exam- 

±  J  Names   of  borrowers 

iner,    public   or   private,    shall    disclose    the  J^^gJS. disclosed  by 
names  of  borrowers  to  other  than  the  proper 


i78  THE   FEDERAL  FARM-LOAN 

officers  of  a  national  farm-loan  association 
or  land  bank  without  first  having  obtained 
express  permission  in  writing  from  the  Farm 
Loan  Commissioner  or  from  the  board  of 
directors  of  such  association  or  bank,  except 
when  ordered  to  do  so  by  a  court  of  compe- 
tent jurisdiction  or  by  direction  of  the  Con- 
gress of  the  United  States,  or  of  either  House 
thereof,  or  any  committee  of  Congress  or  of 
either  House  duly  authorized.  Any  person 
violating  any  provision  of  this  paragraph 
shall  be  punished  by  a  fine  of  not  exceeding 
Penalty  presenbed.     ^^>000   or   by   imprisonment   not   exceeding 

one  year,  or  both. 
Punishment  pre-       Any  person  connected  in  any  capacity  with 

scribed     for     embezzle-  .      ,  . 

ment,  false  entry,  and  any  national  farm-loan  association,  .Federal 

other    fraudulent    acts. 

land  bank,  or  joint-stock  land  bank,  who 
embezzles,  abstracts,  or  willfully  misapplies 
any  moneys,  funds,  or  credits  thereof,  or 
who  without  authority  from  the  directors 
draws  any  order,  assigns  any  note,  bond, 
draft,  mortgage,  judgment,  or  decree  thereof, 
or  who  makes  any  false  entry  in  any  book, 
report,  or  statement  of  such  association  or 
land  bank  with  intent  in  either  case  to  de- 
fraud such  institution  or  any  other  company, 
body  politic  or  corporate,  or  any  individual 
person,  or  to  deceive  any  officer  of  a  national 
farm-loan  association  or  land  bank  or  any 
agent  appointed  to  examine  into  the  affairs 
of  any  such  association  or  bank,  and  every 
person  who  with  like  intent  aids  or  abets 


SYSTEM   IN   OPERATION  179 

any  officer,  clerk,  or  agent  in  any  violation 
of  this  section,  shall  be  punished  by  a  fine 
of  not  exceeding  $5,000  or  by  imprisonment 
not  exceeding  five  years,  or  both. 

Any  person  who  shall  deceive,  defraud,  or  JSbidtt^SSfiSSil 
impose  upon,  or  who  shall  attempt  to  deceive,  ^^"dSSTSilS 

1     r  ■*  •  n  sues  of  bond*. 

defraud,  or  impose  upon,  any  person,  firm,  or 
corporation  by  making  any  false  pretense  or 
representation  regarding  the  character,  issue, 
security,  or  terms  of  any  farm-loan  bond,  or 
coupon,  issued  under  the  terms  of  this  Act; 
or  by  falsely  pretending  or  representing  that 
any  farm-loan  bond,  or  coupon,  issued  under 
the  terms  of  this  Act  by  one  class  of  land 
banks  is  a  farm-loan  bond,  or  coupon,  issued 
by  another  class  of  banks;  or  by  falsely  pre- 
tending or  representing  that  any  farm-loan 
bond,  or  coupon,  issued  under  the  terms  of 
this  Act,  or  anything  contained  in  said  farm- 
loan  bond,  or  coupon,  is  anything  other  than, 
or  different  from,  what  it  purports  to  be  on 
the  face  of  said  bond  or  coupon,  shall  be  fined 
not  exceeding  $500  or  imprisoned  not  exceed- 
ing one  year,  or  both. 

The  Secretary  of  the  Treasury  is  hereby  J^  STd 
authorized  to  direct  and  use  the  Secret  Serv-  v,olation  of  law" 
ice  Division  of  the  Treasury  Department  to 
detect,  arrest,  and  deliver  into  custody  of  the 
United  States  marshal  having  jurisdiction, 
any  person  or  persons  violating  any  of  the 
provisions  of  this  section. 


i8o  THE   FEDERAL   FARM-LOAN 


GOVERNMENT    DEPOSITS 

Temporary  deposits       Sec.  3  2.  That  the  Secretary  of  the  Treasury 

of     public     money     in    .  ,.-•«....  .  * 

Federal  Umd  banks  au-  ^  authorized,  in  his  discretion,  upon  the  re- 

thorized. 

quest  of  the  Federal  Farm  Loan  Board,  to 
make  deposits  for  the  temporary  use  of  any 
Federal  land  bank,  out  of  any  money  in  the 
Treasury  not  otherwise  appropriated.    Such 

Certificate  issued  Federal  land  bank  shall  issue  to  the  Secretary 
of  the  Treasury  a  certificate  of  indebtedness 
for  any  such  deposit,  bearing  a  rate  of  interest 
not  to  exceed  the  current  rate  charged  for 
given!^0*0^  secunty  other  Government  deposits,  to  be  secured  by 
farm-loan  bonds  or  other  collateral,  to  the 
satisfaction  of  the  Secretary  of  the  Treasury. 

certificates  paid  at  Any  such  certificate  shall  be  redeemed  and 

discretion  of  Secretary  ..,,  11-111  1 

of  Treasury.  paid  by  such  land  bank  at  the  discretion  ot 

Aggregate  deposits  the  Secretary  of  the  Treasury.  The  aggregate 

limited-  of  all  sums  so  deposited  by  the  Secretary  of 

the  Treasury  shall  not  exceed  the  sum  of 

$6,000,000  at  any  one  time. 

The  Secretary  of  the  Treasury  is  further 

Secretary   of   the  .....  .  , 

Treasury  authorized  to  authorized,  m  his  discretion,  upon  the  request 

purchase  Federal  farm-  x  * 

loan  bonds;  extended  0f  f^g  Federal  Farm  Loan  Board,  from  time 

by      Congress       (Joint 

MaSy,26b?92o)aptorjune  to  time  during  the  fiscal  years  ending  June 
thirtieth,  nineteen  hundred  and  eighteen,  and 
June  thirtieth,  nineteen  hundred  and  nine- 
teen, respectively,  to  purchase  at  par  and 
accrued  interest  with  any  funds  in  the  Treas- 
ury not  otherwise  appropriated,  from  any 
Federal  land  bank,  farm-loan  bonds  issued  by 
such  bank. 


30, 1921. 


SYSTEM   IN   OPERATION  181 

Such  purchases  shall  not  exceed  the  sum 
of  $100,000,000  in  either  of  such  fiscal  years. 
Any  Federal  land  bank  may  at  any  time  re- 
purchase at  par  and  accrued  interest  for  the 
purpose  of  redemption  or  resale  any  bonds  so 
purchased  from  it  and  held  in  the  Treasuiy. 

The  bonds  of  any  Federal  land  bank  so     shall  be  repurchased 

.,,  10  riiT<  upon    30    days'    notice 

purchased  by  the  Secretary  01  the  treasury,  from  secretary,  one 

1  .    .  year   after   termination 

and  held  in  the  Treasury  under  the  provisions  of  pending  war. 
of  this  amendment  one  year  after  the  termi- 
nation of  the  pending  war,  shall  upon  thirty 
days'  notice  from  the  Secretary  of  the  Treas- 
ury be  redeemed  or  repurchased  by  such  bank 
at  par  and  accrued  interest. 

The  temporary  organization  of  any  Federal      Temporary  organiza- 

^  J  °  J  tion     of    Federal     land 

land  bank  as  provided  in  section  four  of  said  banks  continued. 
Federal  Farm  Loan  Act  shall  be  continued  so 
long  as  any  farm-loan  bonds  purchased  from 
it  under  the  provisions  of  this  amendment 
shall  be  held  by  the  Treasury,  and  until  the 
subscriptions  to  stock  in  such  bank  by 
national  farm-loan  associations  shall  equal 
the  amount  of  stock  held  in  such  bank  by  the 
Government  of  the  United  States. 

ORGANIZATION   EXPENSES 

SEC.    XX        That  the  SUm  Of  $100,000,   Or  SO        Organization  ex- 

1  1  penses       appropriated, 

much  thereof  as  may  be  necessary,  is  hereby  pursed  under  direc- 
appropriated,  out  of  any  money  in  the  Treas-  Board, 
ury  not  otherwise  appropriated,   to  be  ex- 
pended under  the  direction  of  the  Federal 
Farm  Loan  Board,  for  the  purpose  of  carrying 


i82  THE   FEDERAL  FARM-LOAN 

into  effect  the  provisions  of  this  Act,  including 
the  rent  and  equipment  of  necessary  offices. 

LIMITATION    OF    COURT   DECISIONS 

Whole  act  cannot  be       Sec.  t,a.     That   if   any   clause,    sentence, 

declared  invalid  by  de-  °^  J 

oNnvaifdny  part  there"  paragraph,  or  part  of  this  Act  shall  for  any 
reason  be  adjudged  by  any  court  of  compe- 
tent jurisdiction  to  be  invalid,  such  judgment 
shall  not  affect,  impair,  or  invalidate  the  re- 
mainder of  this  Act,  but  shall  be  confined  in 
its  operation  to  the  clause,  sentence,  para- 
graph, or  part  thereof  directly  involved  in  the 
controversy  in  which  such  judgment  shall 
have  been  rendered. 

REPEALING   CLAUSE 

Sec.  *<;.     That  all  Acts  or  parts  of  Acts 

Other  inconsistent  . 

acts  repealed;  right  re-  inconsistent   with   this   Act   are   hereby   re- 
served to  amend,  alter,  * 

or  repeal.  pealed,  and  this  Act  shall  take  effect  upon  its 

passage.    The  right  to  amend,  alter,  or  repeal 
this  Act  is  hereby  expressly  reserved. 
Approved  Juty  17,  1 9 1 6 . 


INDEX 


A 

Agents  of  Federal  land  banks: 

Agencies,  limited    to    banking    corporations 

chartered  by  State 

may  be  discontinued  by  Federal  Farm  Loan 

Board 

aggregate  of  unpaid   principal  of   mortgage 

loans  received  limited 

borrowers  through  agents  must  purchase  stock 

in  Federal  land  bank 

defaulted  loans  must  be  paid  by 

established  after  one  year 

expenses,  connected  with  making  loans,  paid 

by  Federal  land  banks  to  agents 

paid,  become  part  of  loan 

paid  off  by  amortization 

loans,  made  through  agents  for  Federal  land 

banks 

subject    to    same    conditions    as    if    made 
through  national  farm-loan  associations, 
must  indorse  and  become  liable  on  loans  nego- 
tiated by  them 

provisions  for 

required  to  collect  payments  on  loans  without 

charge 

Agricultural  journals: 

bulletins  of  Farm  Loan  Board  distributed  to . 
Agriculture : 

loans  may  be  used  for  purchase  of  lands  for .  . 
value  of  lands  for  agricultural  purposes  basis 

of  appraisal 

Agriculture  Department : 

bulletins  of  Federal  Farm  Loan  Board  dis- 
tributed by 

circulars  of  Federal  Farm  Loan  Board  dis- 
tributed by 


Section 


Page 


15 

149 

15 

150 

15 

150 

15 

148 

25 

168 

15 

148 

15 

149 

15 

149 

15 

149 

*4 

M7 

15 

147 

15 

149 

15 

149 

15 

149 

3 

116 

12 

141 

12 

142 

3 

116 

3 

117 

184 


THE   FEDERAL  FARM-LOAN 


Section 


Amortization : 

application  of  payments 

borrowers  may  require  fees  and  charges  to  be 
paid  off  by 

circulars  to  be  issued  stating  advantages 

expenses  paid  to  agents  of  Federal  land  banks 
paid  off  by 

installments,  payments  sufficient  to  extinguish 

debt  within  limited  period 

under  term  of  mortgage  may  be  collected  by 
national  farm-loan  associations 

minimum  amount  of  defaulted  payments  caus- 
ing insolvency 

mortgages  must  contain  agreement  for  repay- 
ment of  loan 

payments,  may  be  required  to  be  collected  by 
agents  of  Federal  land   banks  without 

charge 

purposes  for  which  they  may  be  employed . 
shall  be  held  in  trust 

sum  borrowed  to  pay  for  stock  in  associations 
paid  by 

tables,  preparation,  and  publication 

Appointment : 

Farm  Loan  Commissioner 

farm-loan  registrars 

Federal  Farm  Loan  Board,  members 

Federal  land  banks,  employees 

land-bank  appraisers 

land-bank  examiners 


receivers 

Appraisal : 

agents  of  Federal  land  banks  paid  for  expenses . 
applicants  for  loans  to  pay  expenses  incurred  in. 
charges  to  borrowers  regulated  by  Federal 

Farm  Loan  Board 

Federal  Farm  Loan  Board,  must  require 

prescribe  forms  for  reports 

prescribe  rules 

land-bank  appraisers  to  report  on  farm  lands . 

loan  committee,  appraisal  of  farm  lands 

report  submitted  to  Federal  land  bank .  .  . 

loans  granted  for  smaller  amounts  than  applied 

for  without  new  appraisal 


13 
3 

IS 

12 

13 
29 
12 


15 
22 
22 

9 
3 

3 
3 
3 
4 
3 
3,  28 
29 

15 
13 

17 
3 
10 
10 
10 
10 
10 


I'atjc 

162-6 

147 
1 1 6-7 

149 

140,  I 

145 
171 
I40 


149 
165 
164 

135 
Il6 

112 
114 
112 
Il8 
114 
114,  170 
171 

149 
I46 

154 
Il6 

138 
138 

138 
137 
137 

142 


SYSTEM   IN   OPERATION 


185 


Appraisal : — Continued 

provisions  for 

reappraisal  permitted  by  Federal  land  bank 

for  additional  loan 

value  of  lands,  as  basis  for  amount  of  loan .  . . 
for  agricultural  purposes,  basis  of  appraisal . 
see  also  Land-bank  appraisers. 
Appraisers.    See  Land-bank  appraisers. 
Assignment: 

land  banks  must  assign  to  farm-loan  registrar 
collateral  security  held  by  him  for  bonds 

issued 

right  of  redemption  and  substitution  being 

reserved 

Attorney-General  of  United  States: 

examination  of  State  laws,  to  aid  Farm  Loan 

Commissioner 

Attorneys: 

Federal  Farm  Loan  Board,  employment 

Federal  land  banks,  employment 

shall  receive  only  usual  fees,  penalty  for 

violation 

joint-stock    land    banks,    shall    receive   only 

usual  fees,  penalty  for  violation 

national  farm-loan  associations,  shall  receive 

only  usual  fees,  penalty  for  violation 
special  counsel  may  be  employed  for  examina- 
tion of  State  laws 


B 


Section 


12 
12 
12 


19 

19 

30 


PcfRC 


Banking  and  Currency  Committee,  House: 
Federal  farm-loan  bill  (H.  R.  6838)  referred 

to 

Federal  farm-loan  bill  (H.  R.  15004)  reported 

with  amendments 

Federal  farm-loan  bill  (S.  2986)  as  amended 

presented  in  House  and  referred  to 

reported  with  amendments 

personnel 

Banking  and  Currency  Committee,  Senate: 
Federal  farm-loan  bill  (S.  2986)  referred  to .  .  . 
reported  with  amendments 

personnel 

*For  these  references  see  official  copy  of  act  issued  by  the  Federal  Farm  Loan 
Board,  Washington,  D.  C. 


138 

142 
142 
I42 


158 

158 

175 


3 
4 

ii5 

118 

3i 

177,8 

31 

177,8 

3i 

177,8 

30 

175 

1 86 


THE  FEDERAL  FARM -LOAN 


Banking  institutions: 

agencies  of  Federal  land  banks  limited  to  bank- 
ing corporations  chartered  by  State 

land-bank  examiners  shall  not  perform  service 

for  compensation  for  any  other 

members  of  Federal  Farm  Loan  Board  pro- 
hibited from  association  with 

Bonds: 

farm-loan  bonds  may  be  exchanged  into  regis- 
tered bonds  and  re-exchanged  into  cou- 
pon bonds 

State,  county,  district,  and  municipal,  farm- 
loan  bonds  bought  and  sold  under  same 

restrictions 

Bonds,  official: 

Federal  land  banks,  employees 

temporary  directors 

forms,  terms,  and  penal  sums  of  surety  bonds 

prescribed  by  Farm  Loan  Board 

receivers 

secretary-treasurer  of  farm-loan  associations.  . 
Bonds,  United  States: 

amortization  payments  may  be  used  to  pur- 
chase   

deposited  as  approved  by  Farm  Loan  Board .  . 
farm-loan  registrar,  may  temporarily  accept  as 

security  on  withdrawal  of  mortgages 

shall  retain  in  his  custody  bonds  pledged  as 
collateral  security  for  issue  of  farm-loan 

bonds 

Federal  land  banks,  5  per  cent  of  capital  must 

be  invested  in 

may  buy  and  sell 

land  banks,  may  tender  as  collateral  security 

for  farm-loan  bond  issue 

must  assign  to  farm-loan  registrar  bonds 

held  by  him  as  collateral  security 

returned  to  land  banks  upon  rejection  of  farm- 
loan  bond  issue 

substitution  allowed  for  other  collateral 

Branch  banks.    See  Federal  land  banks. 
Buildings: 

insurance  money  may  be  applied  for  rebuilding 
by  mortgagor 


Section 


15 

3 


27 

4 
4 

17 
29 

7 


22 
19 

19 


19 

5 
13 

18 
19 

19 
22 


SYSTEM    IN   OPERATION 


Buildings : — Continued 

insured  to  satisfaction  of  Federal  Farm  Loan 

Board 

loans  may  be  used  for 

Bulletins: 

Federal  Farm  Loan  Board,  preparation  and 

distribution 

By-laws: 

Federal  land  banks,  supervised  by  Farm  Loan 
Board 

C 

Capital  stock: 

Federal  land  banks,  amount  of  subscription 
giving  permanent  organization 

amount  to  be  stated  in  organization  cer- 
tificate  

cannot  be  reduced  to  less  than  5  per  cent  of 
outstanding  bonds 

certificate  of  reduction 

Federal  Farm  Loan  Board  may  authorize 
increase 

held  as  collateral  for  loans 

increase  of  stock  for  issue  of  additional 
shares  required 

liabilities    of    associations    deducted    from 
their  canceled  shares 

minimum  amount  and  conditions  of  payment 

original  stock  retired  when  associations  sub- 
scribe $750,000 

reserves  to  equal  20  per  cent  of 

shares  of  insolvent  associations  canceled 

subscription  books  opened  by  Farm  Loan 
Board 

subscription  required  for  loan 

unsubscribed  balance  by  United  States  sub- 
ject to  call 

value  of  shares '. 

vote  restricted  to  stock  held   by  United 

States  and  farm-loan  associations 

joint-stock  land  banks,  amount  necessary  for 
business 

cannot   be  subscribed  by  Government  of 

United  States 

13 


Section 


12 
\2 


143 
141 


116,7 


4 

121 

4 

119 

7 
29 

*33 
113 

17 
7 

154 
133 

4 

119 

29 
5 

173 
124 

5 
23 
29 

125,6 

166 

172,3 

5 
7 

125 
132,3 

5 

5 

125 
124 

5 

124,5 

16 

151 

16 

151 

THE   FEDERAL  FARM-LOAN 


Capitat  stock: — Continued, 

Federal  Farm  Loan  Board  may  authorize 

increase 

must  be  fully  paid  before  issuance  of  bonds .  , 

reserves  to  equal  20  per  cent 

unpaid  is  subject  to  call  by  directors 

national  farm-loan  associations,  applicant  for 

loan  must  subscribe 

Federal  Farm  Loan  Board  may  authorize  in- 
crease   

held  as  collateral  security 

par  and  voting  value 

payment  from  loans 

provisions  for 

reserves  to  equal  20  per  cent  of 

to  increase  as  loans  are  made 

Charter.     See  Corporate  existence. 
Chronology : 

rural-credit   movement,   during   Sixty-fourth 

Congress 

prior  to  Sixty -fourth  Congress 

Circulars: 

Federal  Farm  Loan  Board,  preparation  and 

distribution 

Civil  service: 

farm-ioan  registrars  exempted  from  provisions 

of  law 

Federal    Farm    Loan    Board    employees    ex- 
empted from  provisions  of  law 

land-bank  appraisers  exempted  from  provi- 
sions of  law 

land-bank  examiners  exempted  from  provi- 
sions of  law 

Clerks: 

Federal  Farm  Loan  Board,  employment 

Federal  land  banks,  employment 

Commissions: 

directors,  attorneys,  and  employees  of  land 
banks  or  associations  shall  not  receive, 

penalty  for  violation 

Federal  land  banks  cannot  receive  commission 
or  charge  unless  specifically  authorized .  . 
joint-stock  land  banks  can  only  demand  com- 
mission or  charge  specifically  authorized . 
*See  note  page  185. 


Section 


17 

154 

16 

151 

23 

166 

16 

151 

17 

8 
8 

9 

8 

24 

8 


3 

3 

3 

3 

3 
4 

3i 
14 
16 


SYSTEM   IN   OPERATION 


189 


Commissions : — Continued 

land  banks  or  associations  may  not  receive  un- 
authorized commissions,  penalty  for  vio- 
lation   

national  farm-loan  associations,  based  on  un- 
paid principal  of  loans 

deducted  from  dividends 

paid  agents,  to  be  deducted  from  borrower's 

future  dividends 

Conference  Committee: 

personnel 

Contracts: 

Federal  land  banks,  power  to  make 

Co-operation : 

circulars  to  be  issued  explaining  principles  and 

methods 

Corporate  existence: 

Federal  Farm  Loan  Board  to  charter  land 

banks  and  associations 

Federal  land  banks,  granting  of  charter 

joint-stock  land  banks,  granting  of  charter.  .  . 
national  farm-loan  associations,  granting  of 

charter 

Counterfeiting: 

penalty  for  forging  or  counterfeiting  bonds  of 

land  banks  or  associations 

Courts: 

accounts  of  farm-loan  associations,  receiver 

may  settle  under  order  of  court  of  record.  . 

borrowers'  names  may  be  ordered  disclosed  by 

court  of  competent  jurisdiction 

limitation  of  decisions 

Customs: 

receipts,  not  to  be  deposited  in  land  banks 

D 

Debts: 

national   farm-loan    associations,    contingent 

liabilities  included 

settlement  by  receiver 

stock  canceled  to  pay  land  bank 

Definitions: 

farm-loan  bonds 

first  mortgage 

♦See  note  page  185. 


Section 


31 

9 
9 

15 

* 


17 

4,17 

16,17 

7.17 


3  J 


29 

3i 
34 


29 
29 
29 


Page 


177,8 

135,6 
I36 

149 

* 

I20 


116,7 


154 
H9,I54 
150,154 

132,154 


I76 


172 

177,8 
182 

126 


173 
172 

173 

112 
III 


i  go 


THE   FEDERAL  FARM-LOAN 


Depositaries.    See  Government  depositaries. 
Directors : 

Federal  land  banks,  length  of  term 

must  be  residents  of  district 

nomination  and  election  of  local  directors .  . 
prohibited  from  association  with  other  bank- 
ing interests 

removal  of  district  directors 

selection  and  appointment  of  district  direct- 
ors  

shall  receive  only  usual  salary  and  fees, 

penalty  for  violation 

traveling  expenses,  etc 

vacancies  provided  for 

joint-stock  land  banks,  number  required .... 
shall  receive  only  usual  salary  and  fees, 

penalty  for  violation 

unpaid  capital  stock  subject  to  call  by.  .  . 
national  farm-loan  associations,  assessments 

on  members  levied 

election  and  term  of  office 

must  be  residents   of  district  and   share- 
holders   

not  to  approve  loans  unfavorably  reported. 

number  not  less  than  five 

service   without   compensation   unless   ap- 
proved by  Farm  Loan  Board 

shall  receive  only  usual   salary  and  fees, 

penalty  for  violation 

vote  upon  membership 

voting  limit  of  shareholders 

Dissolution: 

national    farm-loan    associations    and    land 

banks 

Dividends : 

land  banks,  declared  after  reserve  require- 
ments are  met 

not  paid  while  reserve  is  impaired 

provisions  for 

national  farm-loan  associations,  commissions 

charged,  deducted  by  Federal  land  banks. 

declared  after  reserve  requirements  are  met . 

not  paid  while  reserve  is  impaired 

provisions  for 


Section 


4 
4 
4 

4 
17 


3i 

4 

4 

16 

31 
16 

7 

7 

7 
io 

7 


3i 
9 


29 


23 
23 
23 

9 
24 
24 

24 


SYSTEM   IN   OPERATION 


191 


Dividends : — Continued 

paid  on  farm-loan  association  stock  held  as 

security 

paid  on  land-bank  stock  held  as  security 

stock  in  Federal  land  banks  held  by  United 

States  Government  not  to  receive 


Embezzlement: 

penalty  in  relation  to  land  banks  or  national 

farm-loan  associations 

Employees: 

Federal  Farm  Loan  Board,  exemption  from 

civil-service  law 

may  be  placed  in  classified  service 

salaries  and  fees 

Federal  land  banks,  appointment,   etc.,   by 

directors 

appointment,  etc.,  by  temporary  directors. 

schedule  of  salaries  to  be  reported 

shall  receive  only  usual  salary  and  fees, 

penalty  for  violation 

joint-stock  land  banks,  shall  receive  only  usual 

salary  and  fees,  penalty  for  violation 

national  farm-loan  associations,  shall  receive 
only  usual  salary  and  fees,  penalty  for 

violation 

Equipment : 

loans  may  be  used  for  purchase  of 

term  to  be  defined  by  Federal  Farm  Loan  Board 
Examinations : 

land  banks  and  farm-loan  associations 

laws  of  States,  by  Farm  Loan  Commissioner . . 
Commissioner  may  request  aid  of  Attorney- 
General  

provisions  for 

Examiners.     See  Land  bank  examiners. 


Section 


False  entry: 

penalty  for 

False  representation: 

penalty  for  false  representation  in  relation  to 
farm-loan  bonds 


31 


3 
3 
3 

4 
4 
3 

3i 

31 


3i 

12 
12 

3,17,28 
30 

30 
28 


31 

31 


Page 


134 
133 

124,5 


I78 

115 
115 
115 

I20 

Il8 

115,6 

177,8 

177,8 

177,8 

141 

14I 

Il6,  154, 

1 70-I 

174 

175 
170,1 


176 

176,7 


192 


THE   FEDERAL   FARM-LOAN 


Farm  lands: 

affidavit  required  from  organizers  of  associa- 
tions as  to  ownership 

borrowers  must  engage  in  cultivation  of  land 

mortgaged 

delinquent  taxes  on  mortgaged  land  to  be 

reported 

Federal  Farm  Loan  Board,  must  prescribe 

rules  for  appraisal 

must  require  appraisals 

land-bank  appraisers  to  investigate  and  report 

on  land  offered  for  security 

loan  committee  to  appraise  and  report  on  land 

offered  for  security 

loans,  may  be  used  for  buildings  and  improve- 
ment of 

may  be  used  for  purchase  of  land 

may  be  used  to  liquidate  indebtedness  of 

owner 

mortgages  on,  invested  in  by  Federal  land 

banks 

pledged  as  collateral  security  for  bond  issue . 

required  as  security  for  loans 

penalty  for  overvaluation  by  loan  committee 

or  appraiser 

purchasers  may  assume  mortgages  and  stock 

interests  of  vendor 

taxes,     judgments,     liens,     and    assessments 

against,  borrower  to  pay 

paid  by  mortgagee  shall  become  part  of 

mortgage  debt 

value  of,  basis  for  amount  of  loans 

for  agricultural  purposes,  basis  of  appraisal .  . 
Farm  Loan  associations.     See  National  farm- 
loan  associations. 
Farm  Loan  Board.  See  Federal  Farm  Loan  Board. 
Farm-loan  bonds: 

amortization  payments,  may  be  used  for  pay- 
ment of 

may  be  used  for  purchase  of 

applications  for  issue,  provisions  for 

assignment  to  farm-loan  registrar  as  collateral 

security  for  bond  issue 

borrower  may  elect  to  receive  proceeds  of  loan  in 


Section 


7 
12 

7 

10 
3 

10 

10 

12 
12 

12 

13 

18 

12,  16 

31 
12 


Page 


145 

156 

140,152 


22 

165 

22 

165 

18 

157 

19 

158 

12 

144.5 

SYSTEM   IN   OPERATION 


i93 


Section 


Farm-loan  bonds: — Continued 

capital  stock  of  Federal  land  banks  cannot  be 

reduced  below  5  per  cent  of 

capital  stock  of  joint-stock  land  banks  must 

be  paid  before  issuance  of 

certificate  in  face  to  state  authority  for  issue, 

nontaxability,  etc 

circulars  to  be  issued  stating  advantages 

decisions  of  Farm  Loan  Board  as  to  issue .... 

defaulted  loans  may  be  paid  by 

definition  of  term 

denominations 

exchange   into   registered   bonds   and   re-ex- 
change into  coupon  bonds 

exempted  from  taxation 

expense  of  preparation,  assessed  on  land 

banks 

paid  by  Secretary  of  the  Treasury 

farm-loan  registrar,  can  receive  only  qualified 

first  mortgages  to  secure  issue 

must  see  that  collateral  security  covers .... 

shall  deliver  to  banks  applying 

shall  promptly  execute  and  deliver  upon 

notice  of  approval  of  issue 

Federal  Farm  Loan  Board,  can  grant  or  refuse 

authority  to  issue 

may  authorize  payment  at  any  bank 

shall  direct  distinguishing  marks  of  joint- 
stock  land-bank  bonds 

shall  fix  amount  and  terms  of 

shall  prescribe  rules  for  payment  and  re- 
tirement   

shall  reimburse  Secretary  of  the  Treasury 

for  expense  of  preparing 

Federal  land  banks,  may  hypothecate  mort- 
gages as  security  for 

may  issue,  buy,  sell,  and  retire 

Federal  reserve  banks  may  buy  and  sell 

Federal  reserve  member  banks  may  buy  and 

sell 

form,  prescribed  by  Farm  Loan  Board 

provisions  for 

to  be  prepared  by  Secretary  of  the  Treasury 
Government  deposits  secured  by 


7 

133 

16 

151 

21 

162 

3 

1 16-7 

18 

156 

25 

168 

2 

112 

20 

159 

20 

160,  I 

21,  26 

162 

20 

l6o 

20 

I60 

19 

158-9 

19 

159 

20 

160 

19 

157 

153, 

17,  18 

156-7 

22 

164,5 

16 

I51.2 

20 

159 

20 

160 

20 

160 

13 

145 

13 

145 

27 

170 

27 

170 

16,17,21 

155,162 

20 

159,160 

20 

160 

27.32 

170,180 

Page 


194 


THE   FEDERAL  FARM-LOAN 


Farm-loan  bonds: — Continued 

held  in  Treasury  subject  to  delivery   upon 

order  of  Farm  Loan  Board 

instrumentalities  of  Government  of    United 

States  

interest,  charges  on  loans  limited  to  I    per 

cent  over  rate  on  bonds 

interest  on  pledged  mortgages  available  for 

payment  of 

rate  and  time  of  payment  fixed 

investigations    as    directed    by    Farm    Loan 

Board  made  by  appraisers 

investment  in 

Government  funds  prohibited  from 

issue,   authorized  by  Farm  Loan   Board  in 

writing 

banks  apply  through  farm-loan  registrar  for 

authority 

banks  may  be  required  to  give  additional 

security 

information  furnished  to  Farm  Loan  Board 

by  registrar 

limitation  placed  on  land  banks 

provisions  for 

rejected  by  Farm  Loan  Board,  collateral 

security  must  be  returned 

when  approved  by  Farm  Loan  Board,  col- 
lateral security  retained 

joint-stock  land-bank  bonds,  may  be  issued 

against  hypothecated  mortgages 

must  differ  in  form  and  color  from  Federal 

land-bank  bonds 

shall  state  authority  for  issuance 

land  banks  bound  by  acts'of  officers  in  issuing . 

liability  of  land  banks  for 

matured,  full  face  value  to  be  paid 

payable  at  bank  of  issuance 

mortgages,  ineligible  as  security  during  con- 
tinuance of  insufficient  protection  under 

State  laws 

ineligible  as  security  previous  to  examina- 
tion of  State  laws 

made  before  first  issue  of  bonds,  interest 
determined  by  issuing  bank 


Section 


20 

26 

12,  16 

22 
20 

IO 

27 
6 


3,18 

19 

18 

14,16 

19 

19 

19 

16 

16 
16 
21 
21 
22 
22 

30 
30 
12 


Page 

l6o 

I69 

140,152 

I64 
159 

138 
170 
127 

157 

156 

159 

156 
147,151 
157,8,9 

157 

157 

152-3 

1 51-2 

153 
l6l 
I6l 
I64 
I63 

174-5 

174-5 

141 


SYSTEM  IN  OPERATION 


i95 


Farm-loan  bonds: — Continued 

tendered  as  collateral  security  for  issue  of .  .  . 
national  farm-loan  associations  may  issue  cer- 
tificates bearing  interest  convertible  into .  . 
payment  and  retirement  at  option  of  land  banks 

penalty  for  false  representation  as  to 

penalty  for  forging  or  counterfeiting 

plates,  dies,  etc.,  to  be  retained  by  the  Secre- 
tary of  the  Treasury 

special  provisions  of 

terms  prescribed  by  Farm  Loan  Board 

trust  funds  may  be  invested  in 

United  States  bonds  or  cash  as  temporary  se- 
curity may  be  accepted  on  withdrawal  of 

mortgages 

withdrawal  of  collateral  securities  on  surren- 
der of 

Farm  Loan  Bureau.     See  Federal  Farm  Loan 

Bureau. 
Farm  Loan  Commissioner: 

certificate  signed  by,  to  be  contained  in  bonds .  . 
decides  as  to  contingent  liabilities  of  insolvent 

associations 

directors  of  Federal  land  banks,  notice  of  elec- 
tion to  be  given  by  Commissioner 

examination  of  laws  of  States,  duty  of  Com- 
missioner   

may  ask  assistance  of  Attorney-General .... 

special  counsel  may  be  employed 

land-bank  examiners,  may  disclose  names  of 

borrowers  with  permission  of 

report  semiannually  to 

organization  certificate  of  Federal  land  banks 

transmitted  to 

President  of  United  States  to  designate 

stock  of  United  States  in  Federal  land  banks 

voted  by 

Farm  loan  registrars: 
application  for  bond  issue,  etc.,  transmitted  by 

appointment 

collateral  security  for  bond  issue,  deposited 
subject  to  control  of  registrar  as  trustee .  .  . 
must  be  assigned  by  land  banks  to  registrar .  . 
only  qualified  first  mortgages  received 


Section 


18,21 


Page 


158,163 


II 

20 
31 
31 

139.  Ho 

159 

177,8 

176 

20 
21 

160 
161,2 

17 
27 

155 
170 

19 

159 

22 

I64 

21 

162 

29 

173 

4 

121,2 

30 
30 
30 

174 
175 

175 

3i 
28 

177,8 
171 

4 

3 

119 
112 

5 

125 

18 
3 

156 
114 

19 
19 
19 

158 
158 
158 

iq6 


THE   FEDERAL   FARM-LOAN 


Farm  loan  registrars: — Continued 

required  to  be  tendered  to 

retained  in  his  custody  upon  approval  of 

bond  issue 

returned  to  land  banks  upon  rejection  of 

bond  issue 

United  States  bonds  or  cash  temporarily 
accepted 

control,  as  trustee,  of  payments  collected  on 
pledged  mortgages 

decisions  of  Farm  Loan  Board  as  to  bond  issue 
transmitted  to 

duty  to  see  that  outstanding  farm-loan  bonds 
are  covered  by  collateral  security 

exemption  from  civil-service  law 

farm-loan  bonds,  delivery  to  banks  applying .  . 

Federal  land  banks  may  hypothecate  mort- 
gages with,  as  security  for  farm-loan  bonds 

information  regarding  bond  issues  furnished  to 
Farm  Loan  Board 

investment  of  sums  paid  on  mortgages  to  be 
deposited  with 

land  banks  to  apply  for  authority  to  issue 
bonds  through 

notified  of  collections  made  on  pledged  mort- 
gages  

payments  credited  and  mortgages  canceled  by 

qualifications 

registrars  removed  by  Farm  Loan  Board 

salaries  and  expenses 

Farmers: 

bulletins  of  Farm  Loan  Board  distributed  to 
organizations  of 

Federal  land  banks,  one  district  director  re- 
quired to  be  practical  farmer 

Federal  Farm  Loan  Act: 

administration 

courts,  limitation  of  decisions  regarding  Act .  .  . 

organization  expenses  under 

personnel  of  committees  which  considered  bill .  . 

repealing  clause 

title 

Federal  Farm  Loan  Board: 

administration  of  Federal  Farm  Loan  Act  under 

*See  note  page   185, 


Section 


2,18 
19 
19 
19 
22 


19 

3 

19,  20 

13 

18 

22 

3,18 

22 
22 

3 

17 

3 


I 
34 

33 

* 

35 


SYSTEM   IN   OPERATION 


iQ7 


Federal  Farm  Loan  Board: — Continued 

amortization  tables  to  be  published  by  board .  . 
application  for  bond  issue,  etc.,  transmitted  to 

board 

appraisals,  charges  to  borrowers  regulated .... 

forms  for  reports  prescribed 

must  be  required  by  board 

rules  prescribed 

buildings  must  be  insured  to  satisfaction  of 

board 

bulletins  to  be  prepared  by  board 

capital  stock  of  land  banks  and  associations, 

increase  authorized  by  board 

charter  land  banks  and  associations 

circulars  to  be  prepared  by  board 

collateral  security  for  bond  issue  deposited  as 

approved  by  board 

decisions  as  to  bond  issue  transmitted  to  land 

banks  and  farm-loan  registrar 

directors  of  associations,  service  without  com- 
pensation except  when  approved  by  board 

employees,  authorized 

exemption  from  civil-service  law 

may  be  placed  in  classified  service  by  Presi- 
dent   

salaries  and  fees 

"equipment"  to  be  denned  by  board 

establishment,  etc 

examination  of  land  banks  made  and  reported 

to  board 

examination  of  laws  of  States  reported  to  board 
farm-loan  bonds,  additional  security  may  be 

required 

amount  and  terms  fixed 

application  for  issue  made  through  farm- 
loan  registrar  to  board 

authority  to  grant  or  refuse  issue 

forms  and  terms  prescribed 

form  approved  by  board 

held  in  Treasury  subject  to  delivery  by  order 

of  board 

issue  approved 

issue  authorized  in  writing 

payment  at  any  bank  may  be  authorized .... 


Section 


Page 


Il6 


18 

156 

13. 17 

1 4r>.  1 54 

10 

138 

3 

116 

10 

138 

12 

143 

3 

1 1 6-7 

17 

154 

17 

154 

3 

1 1 6-7 

19 

158 

18 

157 

7 

128 

3 

115 

3 

"5 

3 

"S 

3 

115 

12 

141 

3 

1 1 2-1 1 7 

1 1 6, 1 54, 

17,28 

1 70-1 

30 

174 

19 

159 

20 

159 

18 

156 

17,18 

154,156 

17 

155 

20,  21 

160,  162 

20 

160 

13 

145 

18 

157 

22 

163 

ip8 


THE   FEDERAL  FARM-LOAN 


Federal  Farm  Loan  Board: — Continued 

rules  for  exchange  into  registered  bonds, 
etc.,  prescribed 

rules  for  payment  and  retirement 

Secretary  of  the  Treasury  reimbursed  by 

board  for  preparing 

farm-loan  registrars,  appointment 

removal 

shall  furnish  information  regarding  bond 
issues 

shall  retain  collateral  security  upon  ap- 
proval of  bond  issue  by  board 

shall  return  collateral  security  upon  rejec- 
tion of  bond  issue  by  board 

Federal  land  banks,  agencies  may  be  discon- 
tinued   

books  of  subscription  to  capital  stock  opened 
by  board 

branches  established  with  approval  of  board 

by-laws  supervised  by  board 

changes  in  organization  certificate  may  be 
ordered 

compensation  fixed  by  directors  approved 
by  board 

compensation  of  employees  approved  by 
board 

compensation  of  temporary  directors  fixed 
by  board 

conditions  of  payment  for  capital  stock 
prescribed 

district  directors,  designation  of  length  of 
term 

district  directors,  removal 

districts  established 

required  by  board  to  repay  pro-rata  sums 
advanced  by  one  bank  to  pay  coupons  of 
another 

special  approval  required  to  hold  real  estate 
acquired  in  satisfaction  of  debts 

three  district  directors  appointed  by  board .  . 

to  report  reduction  of  stock 

to  submit  schedule  of  employees'  salaries  to 

board 

first  meeting 


Section 


20 
20 

20 

3 
17 

18 
19 
19 

15 

S 

4 
4 

4 

4 

4 

4 

5 

4 
17 

4 


13 

4 
29 


3 
3 


SYSTEM   IN   OPERATION 


199 


Federal  Farm  Loan  Board: — Continued 

Government  deposits  in  Federal  land  banks 

on  request 

"improvement"  to  be  denned  by  board 

information  to  accompany  schedule  of  securi- 
ties tendered  prescribed 

insurance  money  used  for  rebuilding 

interest  charges  of  Federal  land  banks  fixed  by 

board  

investment  of  farm-loan  association  reserves 

directed  by  board 

investment  of  land-bank  reserves  directed  by 

board 

joint-stock    land    banks,    charter    issued    by 

board 

distinguishing  marks  of  bonds  directed  by 

board 

forms  of  bonds  prescribed  by  board 

land-bank  appraisers,  appointment 

removal 

salaries  fixed  by  board 

to  make  investigations  directed  by  board .  .  . 

land-bank  examiners,  appointment 

removal 

salaries  fixed  by  board 

land  banks  and  associations  under  supervisory 

authority  of  board 

liens  on  farm  lands,  approval  required 

loans,  form  and  conditions  of  agreement  pre- 
scribed  

forms  for  applicant  prescribed 

to  members  of  farm-loan  associations,  ap- 
proval required 

losses  through  default  to  be  assessed  against 

solvent  land  banks  by  board 

members,  oath  of  office 

prohibited    from    association    with    other 

banking  interests 

qualifications,  salaries,  term  of  office,  etc.  .  . 
salaries  and  expenses  to  be  paid  by  United 

States 

mortgages,  may  be  declared  ineligible  as  secur- 
ity because  of  State  laws 

rules  for  payment  of  principal  made 


Section 


Page 


32 

I80 

12 

141 

18 

156 

12 

143-4 

17 

154 

24 

168 

23 

167 

16 

I50 

16 

I5I-2 

16 

1 51-2 

3 

114 

17 

155 

3 

115 

10 

133 

3,28 

114 

17 

155 

28 

171 

17 

155 

,  2 

I  1 1-2 

12 

142-3 

12 

143 

9 

135 

21 

l6l 

3 

113 

3 

113 

3 

1 12-3 

3 

115 

30 

174.5 

12 

1 40-1 

THE   FEDERAL   FARM-LOAN 


Federal  Farm  Loan  Board: — Continued 

national   farm-loan   associations,   application 

for  incorporation  sent  to  board 

bond  of  secretary-treasurer  approved 

charter  granted  by  board 

consolidation,  under  rules  and  regulations .  .  . 
increase    in    stock,    quarterly    reports     tr 

board 

insolvent,  approval  of  amount  of  contingent 

liabilities 

to  make  quarterly  reports 

organization   expenses   under   Federal   Farm 

Loan  Act,  supervision 

organization  fund  made  available  for  bulletins . 

powers 

quarterly  statements  made  to  board 

receiver  for  farm-loan  associations,  appoint- 
ment   

collections  subject  to  order  of  board 

to  report  to  board 

to  settle  accounts  under  direction  of  board .  . 

receiver  for  land  banks,  appointment 

report,  annual,  made  to  House  of  Representa- 
tives   

statement  prepared  at  request  of  State  execu- 
tive  

surety  bonds,  form,  terms,  and  penal  sums 

prescribed 

temporary  employment  of  persons  for  special 

work 

vacancies  filled  by  President  of  United  States .  . 
voluntary  liquidation  of  land  banks  and  asso- 
ciations, consent  given 

vote  of  stock  of  United  States  in  Federal  land 

banks  directed  by  board 

Federal  Farm  Loan  Bureau: 

established 

Federal  land  banks: 

advance  of  funds  to  farm-loan  associations 

permitted 

agents.    See  Agents  of  Federal  land  banks, 
amortization  tables  used  by,  to  be  published .  . 
apolication  and  report  of  loan  committee  re- 
ferred to  land-bank  appraisers 


Section 


7 

131 

7 

129 

7 

131 

29 

173 

8 

134 

29 

173 

7 

129 

33 

181,2 

3 

117 

17 

153-156 

3 

116 

29 

171 

29 

172 

29 

172 

29 

172 

29 

172 

3 

116 

30 

175 

17 

155 

3 

114 

3 

1 1 3-4 

29 

174 

5 

125 

3 

112 

7 

130 

3 

160 

10 

138 

Page 


SYSTEM   IN   OPERATION 


201 


Federal  land  banks:—  Continued 

application  for  authority  to  issue  bonds  made 

through  farm-loan  registrar 

appraisal  report  forms  prescribed  by  Federal 

Farm  Loan  Board 

appraiser  to  investigate  solvency,  etc.,  of  or- 
ganizers of  farm-loan  associations 

assessed  for  expense  of  preparing  farm-loan 

bonds 

attorneys  shall  receive  only  usual  salary  and 

fees,  penalty  for  violation 

banking  or  other  business  not  expressly  au- 
thorized cannot  be  transacted 

borrower,  may  require  advancement  of  fees 

and  charges 

through  agents  must  purchase  stock 

bound  by  acts  of  officers  in  issuing  bonds 
branches  established  with  approval  of  Federal 

Farm  Loan  Board 

capital  stock,  amount  of  subscription  giving 

permanent  organization 

books  of  subscription  opened  by  Farm  Loan 

Board 

cannot  be  reduced  to  less  than  5  per  cent 

or  outstanding  bonds 

certificate  of  reduction 

Federal  Farm  Loan  Board  may  authorize 

increase 

held  as  collateral  for  loans 

increase  for  issue  of  shares  permitted 

liabilities  of  associations  deducted  from  their 

canceled  shares 

minimum  amount  and  conditions  of  payment 
one-fourth  of  shares  of  farm-loan  associa- 
tions in  quick  assets 

organizers  of  farm-loan  associations  must 

subscribe 

original  stock  retired  when  farm-loan  asso- 
ciations subscribe  $750,000 

shares  of  insolvent  farm-loan  associations 

canceled 

subscription  required  for  loan 

unsubscribed  balance  held  by  United  States 
subject  to  call 


Section 


18 

156 

10 

138 

7 

131-2 

20 

160 

31 

177-8 

14 

147 

13 
15 
21 

147 

148 
161 

4 

118 

4 

121 

5 

125 

7 
29 

133 
173-4 

17 
7 
4 

154 
133 
119 

29 
5 

'73 
1 -'4 

5 

126 

7 

132 

5 

125-6 

29 

7 

172-3 
131 

Pace 


125 


202 


THE   FEDERAL   FARM-LOAN 


Section 


Federal  land  banks: — Continued 

value  of  shares 

vote  restricted  to  stock   held    by  United 

States  and  associations 

chartered  by  Federal  Farm  Loan  Board 

collateral  security  for  bond  issue,  assigned  to 

registrar 

may  be  substituted  by  similar  mortgages,  etc 
may  be  withdrawn  by  surrender  of  equal 

amount  of  farm-loan  bonds 

returned  upon  rejection  of  bond  issue  by 

Farm  Loan  Board 

collections  for,  by  secretary-treasurer  of  loan 

associations  must  be  transmitted 

may  be  required  of  agents  without  charge .  . 
commissions,  if  specifically  authorized  can  be 

received 

of  agents  to  be  deducted  from  borrower's 

future  dividends 

paid  farm-loan  associations  deducted  from 

dividends 

contingent  liabilities  of  insolvent  farm-loan 

associations  determined 

defaults  under  terms  of  mortgages  held  by . . . 
delinquent  taxes  on  mortgaged  land  reported . 
deposits,  may  be  accepted  from  farm-loan  as- 
sociations  

of  current  funds  cannot  be  accepted  pay- 
able upon  demand  except  from  stock- 
holders   

directors,  length  of  term 

may  permit  names  of  borrowers  to  be  dis- 
closed   

must  be  residents  of  district 

nomination  and  election  of  local  directors .  . 
prohibited  from  association  with  other  bank- 
ing interests 

removal  of  district  directors 

selection  and  appointment  of  district  direct- 
ors   

shall  receive  only  usual  salary  and  fees,  pen- 
alty for  violation 

traveling  expenses,  etc 

vacancies  in  board  provided  for 


5 
17 

19 

22 

22 
19 

7 
15 

15 
9 

29 

25 
7 

13 


14 

4 

3i 
4 
4 

4 
17 


31 
4 
4 


SYSTEM   IN   OPERATION 


203 


Federal  land  banks: — Continued 

districts,  boundaries  may  be  readjusted 

establishment 

dividends,  declared  after  reserve  requirements 

are-  met 

not  paid  while  reserve  is  impaired 

provisions  for 

employees,  appointment  and  compensation 

schedule  of  salaries  to  be  reoorted 

shall  receive  only  usual  salary  and  fees, 

penalty  for  violation 

employment  as  financial  agents  of  Govern- 
ment of  United  States 

establishment,  etc 

examination  of  condition  required  by  Farm 

Loan  Board 

exempted  from  taxation 

exercise  of  unauthorized  power  shall  not  im- 
pair loan  or  mortgage 

farm-loan  bonds,  delivered  by  farm-loan  reg- 
istrar  

exempt  from  taxation 

issue  limited 

lawful  investment  for  trust  funds 

may  be  issued,  bought,  sold,  and  retired  by .  . 
only  qualified  first  mortgages  as  security.  .  .  . 
payment  and  retirement  at  option  of  land 

banks 

promptly  executed  and  delivered  upon  no- 
tice of  approval  of  issue 

farm-loan  registrar  to  be  notified  of  pay- 
ments received  by 

Federal  Farm  Loan  Board,  can  grant  or  re- 
fuse authority  to  issue  bonds 

may  require  additional  security 

to  exercise  general  supervisory  authority  over 
fees,  commissions,  etc.,  shall  not  be  charged  or 
received  unless  authorized,  penalty  for 

violation 

first  mortgages  only  accepted  except  those 

taken  for  additional  security 

funds,  received  by  farm-loan  associations 

transmitted  to  borrower  may  be  in  current 

funds,  or  in  farm-loan  bonds 

14 


Section 


31 

14 
II 

12 


PaRe 


4 

117 

4 

118 

23 

167 

23 

167 

23 

167 

4 

118 

3 

1 15-6 

3i 

177 

6 

126-7 

4 

117-124 

116,  154, 

3,17.28 

171 

26 

168-9 

12 

144 

20 

160 

26 

168-9 

14 

147-8 

27 

170 

13 

H5 

19 

158 

20 

159 

19 

157 

22 

162-3 

154, 

17,18 

156-7 

19 

159 

17 

155 

177 

147 
139-140 

144-5 


204 


THE   FEDERAL  FARM-LOAN 


Federal  land  banks: — Continued 

Government  depositaries,  designation 

security  required 

Government  deposits,  authorized 

certificate  to  be  issued 

incorporation  and  powers 

indebtedness  of  insolvent  associations  paid  by 

canceled  stock 

interest,  charges  to  be  fixed  by  Farm  Loan 

Board 

on  mortgages  made  prior  to  issue  of  farm- 
loan  bonds  determined  by 

on  pledged  mortgages  available 

joint-stock  land  banks,  bonds  must  differ  from 

bonds  of 

organized  under  requirements  of  Sec.  4 

to  have  same  powers  and  limitations,  with 

exceptions 

land-bank  appraisers,  salaries  paid  by  banks.  . 
land-bank  examiners,  penalty  for  accepting 

loan  or  gratuity 

liability,  for  their  own  issue,  etc 

of  all  banks  for  payment  of  each  bond 

loan   committee   report   and   appraisal   sub- 
mitted to 

loans,  applicants  charged  fees  for  appraisal  and 

determination  of  title 

members  of  farm-loan  associations  entitled 

to 

must  be  made  through  their  agents  or  farm- 
loan  associations 

payment  for  stock  in  farm-loan  associations 

from 

to  farm-loan  associations 

unfavorably  reported  not  to  be  made 

location  included  in  title 

losses  through  default  to  be  assessed  against 

solvent  land  banks 

minutes  must  show  liability  as  guarantor .... 

money  may  be  borrowed  by 

mortgages,  application  of  payments  collected 

on 

exempt  from  taxation 

indorsed  by  farm-loan  associations 


Section 


6 

6 

32 

32 

4 

29 

17 

12 
22 

16 
16 

16 
3 

31 
21 
21 

10 

13 

9 

14 

9 

7,9 

10 

4 

21 
21 
13 

22 
26 
II 


SYSTEM   IN   OPERATION 


205 


Federal  land  banks: — Continued 

investment  in,  on  farm  lands  of  district .... 
may  be  hypothecated  as  security  with  farm- 
loan  registrar 

payments  to  be  held  in  trust 

receipt  from  farm-loan  associations  limited . 
tendered   as   collateral   security   for   bond 

issue 

national  farm-loan  associations,  articles  of  as- 
sociation sent  to  bank 

charter  forwarded  through  banks 

may  collect  and  pay  to  land  banks  payments 

due  under  terms  of  mortgage 

noncompliance  with  application  by  borrower 

reported  to 

one  established  in  each  district 

organization  certificate  to  be  made  by  tempo- 
rary directors 

penalty,  for  embezzlement,  false  entry,  etc . . . 
for  forging  or  counterfeiting  bonds  of  land 

banks  and  associations 

powers 

property  may  be  bought,  sold,  or  leased 

provisions  not  applicable  to  joint-stock  land 

banks 

purchasers  of  lands  permitted  to  assume  mort- 
gages and  stock  interests  of  vendors .... 
real  estate,  acquired  in  satisfaction  of  debts 

may  be  held  limited  time 

not  exempted  from  taxation 

real  property  taxable  as  other  real  property .  . 
reappraisal  permitted  for  additional  loan .... 

receiver,  appointment 

repayment  pro  rata  of  sums  advanced  by  one 

bank  to  pay  coupons  of  another 

reserves,  amounts  defaulted  debited  to 

investment  directed  by  Farm  Loan  Board .  . 
five  per  cent  retained  annually  after  20-per- 
cent fund  accumulated 

twenty-five  per  cent  of  net  earnings  semi- 
annually retained 

provisions  for 

to  equal  20  per  cent  of  capital  stock 

restrictions  on 


Section 


13 


16 


Page 


M5 


13 

22 
14 

145 
164 

147-8 

18 

156 

7 
7 

131 
132 

13 

145 

7 

4 

129-130 
118 

4 
3i 

1 1 8-9 
178 

31 
13 
13 

176 

145-147 
146 

152 


142 


13 

I46 

26 

I69 

26 

169-I70 

12 

I42 

29 

172 

17 

155 

23 

166 

23 

I67 

23 

166 

23 

166 

23 

166-7 

23 

166 

14 

147-8 

206 


THE   FEDERAL   FARM-LOAN 


Section 


Federal  land  banks: — Continued 

schedule  of  securities  tendered  furnished  with 

mortgages 

securities  and  current  funds  may  be  deposited 

in  Federal  Reserve  member  banks 

statement  of  condition,  rendered  quarterly .  .  . 
temporary    directors,   employment    of    attor- 
neys, etc 

official  bonds 

qualifications  and  compensation 

temporary  management 

United  States  bonds  may  be  bought  and  sold  by 
voluntary  liquidation  with  consent  of  Farm 

Loan  Board 

see  also  Agents  of  Federal  land  banks. 
Federal  Reserve  banks: 

farm-loan  bonds,  permission  to  buy  and  sell 

qualified 

Federal  Reserve  member  banks: 

farm-loan  bonds,  permission  to  buy  and  sell .  .  . 
Federal  land  banks  may  deposit  securities  and 

current  funds  in 

Fees: 

applicants  for  loans  may  be  charged  for  ap- 
praisal and  determination  of  title 

borrower  may  require  fees  and  charges  to  be 

paid  off  in  amortization  payments 

directors,  attorneys,  and  employees  of  land 

banks  or  associations  to  receive  only  usual 

salary  and  fees,  penalty  for  violation 

land  banks  or  associations  may  not  charge  or 

receive   unauthorized   fees,   penalty   for 

violation 

State  fees  and  recording  charges  may  be  in- 
cluded in  cost  of  negotiating  mortgage 

loans 

Fertilizers : 

loans  may  be  used  for  purchase  of 

Forgery: 

penalty  for  forging  or  counterfeiting  bonds  of 

land  banks  or  associations 

Fraud : 
penalty  for  fraudulent  acts  in  relation  to  land 
banl;s  or  associations 


18 

13 

3 


Page 


4 

118 

4 

118 

4 

118 

4 

118 

1.1 

145 

29 


156 

146 

116 


174 


27 

170 

27 

170 

13 

I46 

13 

I46-7 

13 

147 

31 

177-8 

31 

177-8 

13 

I46-7 

12 

141 

31 

176 

31 

J78 

SYSTEM   IN   OPERATION 


207 


G 

Government  depositaries: 

designation  and  duties  of 

Government  deposits.     See  Public  money. 
Government  of  United  States: 

Federal  land  banks,  capital  stock  owned  by 

Government  to  be  allowed  vote 

capital  stock  owned  by  Government  to  re- 
ceive no  dividends 

capital  stock  shares  not  otherwise  taken 

subscribed  by 

joint-stock  land  banks,  capital  stock  ,cannot 

be  subscribed  by 

mortgages  and  farm-loan  bonds  deemed  in- 
strumentalities of 

H 

Homesteads: 

State  laws  on  exemptions  examined  by  Farm 

Loan  Commissioner 

House  of  Representatives: 

borrowers'  names  may  be  ordered  disclosed  by 
personnel    of   committees    which    considered 

Federal  farm-loan  bills 

report  of  Federal  Farm  Loan  Board  made  to . . . 


Insolvency: 

Federal  Farm  Loan  Board,  may  declare  asso- 
ciation insolvent 

may  declare  land  banks  insolvent 

minimum  amount  defaulted  causing 

Insurance : 

buildings  must  be  insured  to  satisfaction  of 

Federal  Farm  Loan  Board 

mortgagor  may  require  use  for  rebuilding 

payable  to  mortgagee 

Interest: 

application  of  payments 

charges  of  Federal  land  banks  fixed  by  Farm 

Loan  Board 

defaulted  payments,  minimum  amount  caus 

ing  insolvency 

♦See  note  pane  185. 


Section 


30 
31 

3 


Page 


126-7 


5 

124--, 

5 

124 

5 

125 

16 

151 

26 

169 

174 

177-8 

116 


29 

171 

29 

172 

29 

171 

12 

143 

12 

143-4 

12 

144 

22 

164-5 

17 

154 

29 

171 

208 


THE   FEDERAL  FARM-LOAN 


Section 


Interest : — Continued 

shall  carry  8-per-cent  interest 

full  amount  to  be  paid  when  due 

Government  deposits  to  bear 

on  first  mortgages,  made  prior  to  issue  of  farm- 
loan  bonds,  determined  by  Federal  land 
banks 

rate  on  mortgages,  fixed  at  not  more  than  6 

per  cent 

limited  to  I  per  cent  over  rate  on  farm-loan 
bonds 

receiver's  collections,  deposits  by  Secretary  of 
the  Treasury 

time  for  payment  and  rate  on  farm-loan  bonds 

unpaid  taxes,  liens,  judgments,  and  assess- 
ments against  land  mortgaged  shall  bear 
8-per-cent  interest 


Joint-stock  land  banks: 

amortization  tables  used  by,  to  be  published .  . 
application  of  payments  collected  on  pledged 

mortgages 

attorneys  shall  receive  only  usual  salary  and 

fees,  penalty  for  violation 

bound  by  acts  of  officers  in  issuing  bonds .... 
business  not  expressly  authorized  cannot  be 

transacted 

capital  stock  amount  necessary  for  business .  . 
Federal  Farm  Loan  Board  may  authorize 


increase 

Government  of  United  States  cannot  sub- 
scribe to 

must  be  paid  before  issuance  of  bonds 

unpaid  subject  to  call  by  directors 

chartered  by  Federal  Farm  Loan  Board 

collateral  security,    may   be  substituted  by 
similar  mortgages,  etc 

may  be  withdrawn  by  surrender  of  equal 
amount  of  farm-loan  bonds 

retained  by  farm -loan   registrar  for  bond 
issue  must  be  assigned  to  him 

returned  upon  refusal  to  allow  bond  issue  by 
Farm  Loan  Board 


12 

22 
32 


12 

12 

12,  16 


29 

20 


Page 


'43 
164 
180 


140 

141 

140 

173 
159 

143 


3 

116 

22 

165 

31 

177-8 

21 

161 

16 

151 

16 

151 

17 

154 

16 

151 

16 

151 

16 

151 

16,17 

150,  154 

22 

163 

22 

164 

19 

158 

19 

157 

SYSTEM   IN   OPERATION 


209 


Joint-stock  land  banks: — Continued 

commissions  not  specifically  authorized  not 

allowed 

directors,  may  permit  names  of  borrowers  to 

be  disclosed 

number  required 

shall  receive  only  usual  salary  and  fees, 

penalty  for  violation 

dividends,  declared  after  reserve  requirements 

are  met 

not  paid  while  reserve  is  impaired 

provisions  for 

employees  shall  receive  only  usual  salary  and 

fees,  penalty  for  violation 

employment  as  financial  agents  of  Government 

of  United  States 

examination  of  condition  required  by  Farm 

Loan  Board 

exemptions  from  provisions  governing  Fed- 
eral land  banks 

farm-loan  bonds,  application  for  authority  to 

issue  made  through  farm-loan  registrar .  .  . 

authority    to    issue   against    hypothecated 

mortgages 

delivered  by  farm-loan  registrar 

exempt  from  taxation 

expense  of  preparation  charged  to  bank 

lawful  investment  for  trust  funds 

limited  power  to  issue  or  obligate  themselves 

for 

must  differ  in  form  and  color  from  Federal 

land-bank  bonds 

payment  and  retirement  at  option  of  land 

banks  after  five  years 

promptly  executed  and  delivered  upon  no- 
tice of  approval  of  issue 

shall  state  authority  for  issuance 

farm-loan  registrar,  shall  receive  only  qualified 
first  mortgages  from  land  banks  to  secure 

bond  issue 

to  be  notified  of  payments  received  by  bank 
Federal  Farm  Loan  Board,  exercise  general 

supervisory  authority  over 

grant  or  refuse  authority  to  issue 


Section 


1 6 


Page 


152 


31 

177-8 

16 

150 

31 

177-8 

23 

167 

23 

167 

23 

166-7 

31 

177-8 

6 

126-7 

116,154, 

,17,28 

1 70-1 

16 

152 

18 

156 

16 

153-4 

20 

160 

26 

169 

20 

160 

27 

170 

16 

151 

16 

152 

20 

159 

19 

157 

16 

152 

19 

158 

22 

162 

17 

I5S 

17, 18 

154. 15c 

2IO 


THE  FEDERAL  FARM-LOAN 


Section 


Page 


Joint-stock  land  banks: — Continued 

may  require  additional  security 

prescribe  appraisal  report  forms 

prescribe  forms  for  bonds 

shall  direct  distinguishing  marks 

fees,  commissions,  etc.,  shall  not  be  charged  or 
received  unless  authorized,  penalty  for 

violation 

Government  depositaries,  designation 

security  required 

interest,  limited  to  I  per  cent  over  rate  paid  on 

farm-loan  bonds 

on  pledged  mortgages  available 

land-bank  appraisers,  application  and  report 
of  loan  committee  referred  to  appraisers .  . . 

salaries  paid  by  bank 

land-bank  examiners,  penalty  for  accepting 

loan  or  gratuity  from  land  banks 

loans,  secured  by   first   mortgages  on  farm 

lands 

unfavorably  reported  not  to  be  made 

mortgages,  exempt  from  taxation 

tendered  by  land  banks  as  collateral  security 

for  bond  issue 

number  of  persons  required  for  formation 

organized  under  Federal  land-bank  require- 
ments   

payments  on  pledged  mortgages  to  be  held  in 

trust 

penalty,  embezzlement,  false  entry,  etc 

forging  or  counterfeiting  bonds  of 

powers  and  limitations  same  as  Federal  land 

banks,  with  exceptions 

provisions  and  powers 

real  property  taxable  as  other  real  property .  . 

receiver,  appointment 

reserves,  amounts  defaulted  debited  to 

investment  directed  by  Farm  Loan  Board .  . 
five  per  cent  retained  annually  after  20-per- 
cent fund  accumulated 

twenty-five  per  cent  of  net  earnings  semi- 
annually retained 

provisions  for 

shall  equal  20  per  cent  of  capital  stock .... 


19 

159 

10 

138 

16 

153 

16 

152 

31 

147-8 

6 

126-7 

6 

127 

16 

152 

22 

164 

10 

138 

3 

"4-5 

31 

177-8 

16 

152 

10 

138 

26 

169 

18 

156 

16 

150 

16 

151 

22 

164 

3i 

178 

3i 

176 

16 

151 

16 

150-154 

26 

169-170 

29 

172 

23 

166 

23 

167 

23 

166 

23 

166 

23 

166-7 

23 

166 

SYSTEM   IN   OPERATION 


211 


Joint-stock  land  banks: — Continued 

restrictions  on  mortgage  loans  same  as  Federal 

land  bank,  except  as  stated 

schedule  of  securities  tendered  furnished  with 

mortgage 

shareholders,  have  same  voting  privileges  as 
shareholders  in  national  banking  associa- 
tions  

liability 

taxable  on  shares  as  in  national  banks.  .  .  . 
statement  of  condition,  rendered  quarterly .  .  . 
voluntary  liquidation  with  consent  of  Farm 

Loan  Board 

Judgments: 

limitation  under  Federal  Farm  Loan  Act .... 
on  mortgaged  land,  paid  by  mortgagee  shall 

become  part  of  mortgage  debt 

shall  be  paid  by  borrower 

L 

Laborers : 

Federal  Farm  Loan  Board,  employment 

Federal  land  banks,  employment 

Land-bank  appraisers: 

appointment  by  Farm  Loan  Board 

eligibility  for  appointment 

exemption  from  civil-service  law 

investigate  and  report  upon  land  offered  as 

security 

investigation  directed  by  Farm  Loan  Board  to 

be  made 

investigation  of  solvency,  etc.,  of  organizers  of 

farm-loan  associations 

loan  committee  report  referred  to,  by  land 

banks 

loans  unfavorably  reported  not  to  be  made .  . . 
penalty  for  overvaluation  of  lands  offered  as 

security 

qualifications  of 

removal  by  Federal  Farm  Loan  Board 

Land-bank  examiners: 

appointment  of 

borrowers'  names  not  to  be  disclosed,  penalty 

for  violation 


Page 


16 

18 

16 

16 

26 

3 

29 

34 

12 
12 


3 
4 

3 
10 

3 

10 
10 

7 

10 
10 

3i 
3 

17 

3,28 
3i 


152 
156 

151 
150 
169 
116 

174 

182 

143 
M3 


»5 

118 

114 
138 
115 

138 

138 

131-2 

138 
138 

175 
114 

155 
114,170 

177-8 


212 


THE   FEDERAL   FARM-LOAN 


Land-bank  examiners: — Continued 

exemption  from  civil-service  law 

penalty  for  accepting  loan  or  gratuity  from 
land  bank  or  national  farm-loan  associa- 
tion   

qualifications  of 

removal  by  Federal  Farm  Loan  Board 

reports  on  farm-loan  associations  semiannually 
requirements  same  as  those  of  national  bank 

examiners 

salaries  and  expenses 

shall  not  perform  service  for  compensation  for 

any  other  banking  institution 

Land  banks.     See  Federal  land  banks — Joint- 
stock  land  banks. 
Land  titles: 

determination,  agents  of  Federal  land  banks 

paid  for  expenses 

applicants  for  loans  charged  for  expenses.  . 
charges  regulated  by  Farm  Loan  Board .... 

laws  of  States  examined  and  report  made 

Laws: 

States,  examination  and  report  by  Farm  Loan 

Commissioner 

examination,   Attorney-General  of  United 

States  to  aid 

examination,  special  counsel  employed 

Lawyers.     See  Attorneys. 
Liabilities: 

debts  of  insolvent  farm-loan  associations  to 

include  contingent  liabilities 

receiver  and  Federal  land  bank  determine  con- 
tingent liabilities  of  association 

Liability : 

agents  of  Federal  land  banks  liable  for  loans 

negotiated 

Federal  land  bank,  for  its  own  issue,  primarily . 
minutes  of  land  bank  must  show  liability  as 

guarantor 

national  farm-loan  associations,  cancellation 

of  stock  not  to  impair 

shareholders,  joint-stock  land  banks 

Liens: 

on  mortgaged  land,  borrowers  shall  pay 


Section 


31 

3 

17 
28 

28 
3,28 

31 


15 

13 
17 
30 


30 


30 
30 


29 
29 


T5 
21 


29 
16 


SYSTEM   IN   OPERATION 


213 


Suction 


Page 


Liens: — Continued 

paid  by  mortgagee  shall  become  part  of 

mortgage  debt 

Liquidation: 

land  banks  and  farm-loan  associations,  with 

consent  of  Farm  Loan  Board 

Live  stock: 

loans  may  be  used  for  purchase  of 

Loan  Commissioner.    See  Farm  Loan  Commis- 
sioner. 
Loan  committee: 

appraise  and  report  on  land  offered  for  security 

election  of 

eligibility  for  membership 

expenses  paid  by  farm-loan  associations 

member  interested  cannot  pass  on  loan 

mortgage  loan,  application  referred  to 

unfavorably  reported,  not  to  be  approved .  .  . 
penalty  for  willfully  overvaluing  land  offered 

as  security  for  loans 

report,  must  accompany  articles  of  association 
referred  to  land-bank  appraisers  by  land 

banks 

submitted  to  Federal  land  banks 

Loans: 

additional,  increase  of  capital  stock  of  farm- 
loan  associations 

reappraisal  permitted  by  Federal  land  banks 
agents  of  Federal  land  banks,  aggregate  of 
mortgage  loans  received  from,  limited .... 

expenses  paid  become  part  of  loan 

may  be  required  to  collect  payments  with- 
out charge 

must  indorse  and  become  liable  for  pay- 
ments on 

paid  actual  expenses  connected  with  making 
subject  to   same  conditions  as  farm-loan 

associations 

agricultural  value  of  lands  mortgaged  basis  for 

amount 

applicants,  charged  for  expenses  of  appraisal,  etc 
must  be  member  of  farm-loan  association .  . 
must  state  on  prescribed  forms  purposes  for 
which  loan  is  to  be  used 


29 
12 


10 

7 

10 

7 

10 
10 
10 

31 

7 

10 
10 


8 
12 

15 
15 

15 

15 
15 

15 

12 
13 


143 

172 
141 


137 
128 

137 
130 
138 
137 

138 

175 
131 

138 
138 


134 
142 

149-150 
149 

149 

149-150 
149 

148 

142 

146-7 

134 

143 


214 


THE   FEDERAL  FARM-LOAN 


Loans : — Continued 

appraisal,    new,    not    required    for    smaller 

amounts  than  applied  for 

borrowers,  limited  in  amount  of  loan 

may  elect  to  receive  proceeds  in  farm-loan 

bonds 

must  engage  in  cultivation  of  land  mort- 
gaged   

to  receive  from  Federal  land  banks  when 

available 

capital  stock,  Federal  land  banks,  as  collateral 

security 

Federal  land  banks,  subscribed  to  obtain . 
national  farm-loan  associations,  as  collateral 

security 

national  farm-loan  associations,  subscribed 

to  obtain 

defaulted 

exercise  of  unauthorized  power  by  Federal  land 
bank  or  farm-loan  association  does  not 


Section 


impair 

expended  otherwise  than  agreed,  whole  may 

become  payable 

Federal  land  banks  must  make  through  their 

agents  or  national  farm-loan  associations . 

increase  above  maximum  limit  by  addition  of 

loan  for  purchase  of  stock  prohibited 

interest  or  principal  paid  through  farm-loan 

associations 

investment  of  Government  funds  in  mortgage 

loans  prohibited 

joint-stock  land  banks,  have  same  restrictions 

as  Federal  land  banks,  except  as  stated .  . 

interest  charged  limited  to  I  per  cent  over 

rate  paid  on  farm-loan  bonds 

loans  secured  by  first  mortgages  on  farm 

lands 

laws  of  States  examined  and  report  made 

national  farm-loan  associations,  amount  limited 
commissions  based  on  unpaid  principal  of .  .  . 
defaulted,  minimum  amount  causing  insol- 
vency   

obtained  from  Federal  land  banks 

supervision  by  secretary-treasurer 


12 
12 

12 

12 

9 

7 
7 

8 

8 
25 

12 
12 
14 

9 

7 

6 

16 

16 

16 

30 

7 

9 

29 
7,9 

7 


Page 

I42 
143 

144-5 
142 

135 

133 
132 

134 

134 

168 

I44 
144 
147 
135 
129 
127 
152 
152 

152 

174 

131 

135-6 

171 

132, 136 

129 


SYSTEM   IN   OPERATION 


215 


Section 


Loans: — Continued 

needs  of  farmers,  districts  apportioned  relative 
to 

noncompliance  with  provisions  to  be  reported . 

payment  for  stock  in  farm-loan  associations 
from 

penalty,  for  acceptance  of  loan  from  land 
banks  or  national  farm-loan  associations 

by  land-bank  examiners 

for  making  false  statement  in  application .  . 

purposes  for  which  loans  may  be  made 

restrictions  on 

secured  by  first  mortgages  on  farm  lands  in 
land-bank  districts 

State  fees  and  recording  charges  may  be  in- 
cluded in  cost  of  negotiating 

unfavorably  reported,  by  land-bank  apprais- 
ers, not  to  be  made 

by  loan  committee,  not  to  be  approved 

Losses: 

amounts  defaulted  debited  to  reserves  of  land 
banks 

assessed  against  solvent  land  banks  liable 

defaulted  loan  must  be  paid  by  association  or 
agent  through  which  made 

minimum  amount  defaulted  causing  insolvency 

M 
Mortgages: 
amortization  payments  may  be  used  for  loans 

on  first  mortgages 

amortization  plan  agreement  in  first  mortgages 
appraisal,  etc.,  applicants  charged  for  expenses 

of 

assumed  by  legal  representatives  of  borrower, 

in  case  of  death 

assumed  by  purchasers  of  land  mortgaged .  .  . 
collateral  security  for  bond  issue,  deposited  as 

approved  by  Farm  Loan  Board 

land  banks  shall  tender 

may  be  substituted  by  similar  mortgages . . 
must  be  assigned  to  farm-loan  registrar  as 

trustee 

retained  by  registrar  on  approval  of  issue . , . 


4 
7 

9,12 


Page 


117 

13° 

135.  144 


31 
31 

12 
12 

175-6 

175 

1 41  -2 

I4O-I45 

12 

I40 

13 

146-7 

10 

IO 

138 
137 

23 
21 

166 
162 

25 
29 

168 
171 

22 
12 

165 
I40 

13 

147 

12 
12 

143 
142 

19 
18 
22 

158 
156 
163 

19 
19 

158 

157-8 

2l6 


THE   FEDERAL   FARM-LOAN 


Mortgages : — Continued 

returned  to  land  banks  upon  refusal  of  issue . 
contingent  liability  of  indorser  estimated  as 

debt 

deemed  instrumentalities  of  Government  of 

United  States 

deiaults,  borrower  defaults  in  conditions  of, 

whole  may  become  payable 

debited  to  reserves  of  land  banks 

must  be  paid  by  association  or  agent  in- 
dorsing   

shall  carry  eight  per  cent  interest 

exercise  of  unauthorized  power  by  Federal 
land  bank  or  national  farm-loan  associa- 
tion not  to  invalidate 

farm-loan  registrar,  can  receive  only  qualified 
first  mortgages  to  secure  bond  issue.  .  .  . 

notified  of  collections  made 

Federal  Farm  Loan  Board,  investigations  di- 
rected by,  made  by  appraisers 

members  not  to  deal  in 

rules  for  payment  of  principal  to  be  pre- 
scribed by 

Federal  land  banks,  agents  may  be  required  to 

collect  payments  without  charge 

agents  must  indorse  and  become  liable  for 

payments  on  loans  negotiated  by  them .  . 

agents  paid  actual  expenses  connected  with 

making  loans 

aggregate  of  mortgage  loans  received  from 

agents  limited 

capital  stock  subscribed  to  obtain 

expenses  paid  agents  become  part  of  loan .  . 
may  accept  only  first  mortgages,   except 

those  taken  for  additional  security 

may  invest  in  mortgages  on  farm  lands  in 

district 

mortgages   may  be  hypothecated   by,   as 

security  for  farm-loan  bonds 

"first  mortgage,"  definition  of 

Government  funds,  investment  prohibited 
ineligible  as  security  for  farm-loan  bonds,  dur- 
ing continuance  of  defective  State  laws . .  . 
previous  to  examination  of  State  laws 


Section 


19 
29 
26 

12 

23 

25 
12 


19 

22 

IO 

3 

12 
15 
15 
15 
15 

7 
15 

14 

13 

13 
2 
6 

30 
30 


SYSTEM   IN   OPERATION 


217 


Mortgages : — Continued 

installments  paid  must  be  sufficient  to  extin- 
guish debt  after  five  years,  but  before 

forty  years 

interest,  not  to  exceed  by  more  than  1  per  cent 

interest  paid  on  farm-loan  bonds 

on  pledged  mortgages,  available  to  land 

banks 

prior  to  issue  of  farm-loan  bonds,  deter- 
mined by  Federal  land  banks 

rate  fixed  at  not  more  than  6  per  cent 

joint  -  stock   land   banks,    may   issue   bonds 

against  hypothecated  mortgages 

shall  secure  loans  by  first  mortgages  on  farm 

lands 

laws  of  States  examined  and  report  made .... 
loans,  application  filed  with  secretary-treas- 
urer of  national  farm-loan  associations .  . 
application  referred  to  loan  committee .... 
of  joint-stock  land  banks  under  same  restric- 
tions as  Federal  land  banks,  with  specific 

exceptions 

national  farm-loan  associations,  indorsement  by 
may  collect  and  pay  to  land  banks  payments 

due  under  terms  of 

must  subscribe  capital  stock  to  obtain .... 

receipt  from  limited 

payments  on  pledged  mortgages,  application  of 

held  in  trust 

purposes  for  which  loans  may  be  made 

restrictions  based  on  loans  and  first  mortgages 
schedule  of  securities  tendered  furnished  with . 
State  fees  and  recording  charges  may  be  in- 
cluded in  cost  of  negotiating 

taxation,  exempted  from 

taxes,  delinquent,  on  land,  to  be  reported .... 

United  States  bonds  or  cash  as  temporary 

security  on  withdrawal  of 

N 
National  farm-loan  associations: 

amortization  tables  used  by,  to  be  published .  . 

appraisal  report  forms  prescribed  by  Federal 

Farm  Loan  Board 


Section 


19 

3 
10 


Page 


12 

140 

2,16 

140,  152 

22 

164 

12 

141 

12 

141 

16 

152-3 

16 

152 

30 

174 

9 

137 

IO 

137 

16 

152 

II 

139 

13 

145 

8 

134 

H 

143 

22 

164 

22 

164 

12 

141-2 

12 

140-145 

18 

156 

13 

146-7 

26 

169 

7 

130 

159 

116 

138 


2l8 


THE   FEDERAL  FARM-LOAN 


National  farm-loan  associations: — Continued 
articles  of  association,  accompanied  by  report 

of  loan  committee 

when  made  to  be  sent  to  Federal  land  banks 
attorneys  shall  receive  only  usual  salary  and 

fees,  penalty  for  violation 

borrowers,  stock  interests  assumed  by  legal 

representatives  in  case  of  death 

stock  interests  assumed  by  purchaser  of 

mortgaged  land 

capital  stock,  applicants  for  loans  must  sub- 
scribe  

Federal  Farm  Loan  Board  may  authorize 

increase 

held  as  collateral  security 

member  may  borrow  to  pay  for 

par  and  voting  value 

to  increase  in  proportion  as  loans  are  made .  . 
certificates  bearing  interest  convertible  into 

farm-loan  bonds,  to  issue 

charter,    Federal    Farm    Loan    Board    given 

power  to  grant 

Federal  Farm   Loan  Board  to  determine 

granting 

commissions,  based  upon  unpaid  principal  of 

loans 

deducted  from  dividends  by  Federal  land 

banks 

condition,    examination,    required    by    Farm 

Loan  Board 

statement  rendered  quarterly 

statement  required 

consolidation  permitted 

debts,  contingent  liabilities  included 

directors,  cannot  pass  on  loan  if  interested 
election  and  term  of  office 


expenses 

may  permit  names  of  borrowers  to  be  dis 
closed 

must  be  residents  of  district  and  shareholders 
not  to  approve  loans  unfavorably  reported . 

number,  minimum,  5 

service    without    compensation    unless    ap 
proved  by  Farm  Loan  Board 


Section 


7 

7 

31 
12 
12 


17 
8 

9 
8 


II 

17 

7 

9 

9 

17,28 

3 

7 

29 

29 

10 

7 

7 

3i 

7 

10 

7 


7 


SYSTEM   IN   OPERATION 


219 


National  farm-loan  associations: — Continued 
shall  receive  only  usual  salary  and  fees,  pen- 
alty for  violation 

vote  upon  membership 

dividends,  declared  after  reserve  requirements 

are  met 

not  paid  while  reserve  is  impaired 

provisions  for 

embezzlement,  false  entry,  etc.,  penalty  for.  . .  . 
employees  shall  receive  only  usual  salary  and 

fees,  penalty  for  violation 

examiners  of  land  banks,  penalty  for  accepting 

loan  or  gratuity  from  associations 

Federal  land  banks,  agencies  discontinued  if 
district  is  adequately  served  by  associatk  >n 
capital  stock,  owned  by  associations  not  to 

be  transferred 

capital  stock,  subscriptions  reaching  $100,- 

000  gives  permanent  organization  to  bank 

capital  stock,  subscriptions  reaching  $750,- 

000  retires  original  stock 

capital  stock,  vote  allowed  associations 

directors,  nomination  and  election  of  local 

directors  by  association 

directors,  six  local  directors  selected  by  asso- 
ciations  

loans  by,  made  only  through  associations  or 

agents 

loans  through  agents  subject  to  same  condi- 
tions as  if  made  through  associations 

may  accept  deposits  from  associations 

may  increase  capital  stock  for  issue  of  shares 

to  associations 

twenty-five  per  cent  of  capital  stock  in  quick 

assets 

fees,  commissions,  etc.,  shall  not  be  charged  or 
received  unless  authorized,  penalty  for 

violation 

forging  or  counterfeiting  bonds  of  land  banks, 

penalty  for 

funds,  advanced  by,  in  anticipation  of  dividends 

received  from  Federal  land  banks 

transmitted  to  borrower  may  be  in  current 

funds  or  farm-loan  bonds 

15 


Section 


31 

9 

177-8 
136-7 

24 
24 
24 
31 

167-8 
167 

167-8 
178 

31 

177-8 

3' 

175-6 

15 

150 

5 

124 

4 

121 

5 
5 

125-6 
124-5 

4 

12  1-2 

4 

121 

41 

147 

15 

13 

I48 
I46 

4 

119 

5 

126 

31 
31 

7 
11 


Page 


177-8 

176 
I30 
139 

144-5 


THE   FEDERAL   FARM-LOAN 


National  farm-loan  associations: — Continued 
incorporation,  application  sent  to  Farm  Loan 

Board 

insolvency,  minimum  amount  defaulted  causing 
insolvent,  Federal  land  banks  to  report  reduc- 
tion of  stock  due  to 

proceeds  of  canceled  land  -  bank  stock  ap- 
plied on  debts 

stock  in  Federal  land  banks  canceled 

liabilities,  contingent,  determined  by  receiver 

and  Federal  land  bank 

liquidation,  voluntary,  with  consent  of  Farm 

Loan  Board 

loans,  amount  limited 

defaulted,  must  be  paid  by 

exercise  of  unauthorized  power  shall  not 

impair 

obtained  from  Federal  land  banks 

part  may  be  used  to  pay  for  stock  in 

supervision  by  secretary-treasurer 

members,  assessment  permitted 

permitted  to  borrow 

membership,  limited  to  borrowers 

qualifications  for 

mortgages,  application  filed  with  secretary- 
treasurer  of 

application  referred  to  loan  committee 

exercise  of  unauthorized  power  shall  not 

impair 

payments  due  may  be  collected  and  paid  to 

land  banks 

number  of  persons  required  for  forming 

organization 

circulars  to  be  issued  Instructing  farmers 

how  to  organize 

organizers,  affidavit  relative  to  ownership  of 

land 

property  required  for  business  may  be  owned .  . 

real  estate  not  exempted  from  taxation 

real  property  taxable  as  other  real  property .  .  . 

receivers,  appointment 

report  to  Farm  Loan  Board 

to  settle  debts  and  sell  property 

to  take  possession  of  books  and  collect  assets 


Section 


7 

29 

29 

29 
29 

29 

29 

7 
25 

12 

7,9 
12 

7 
7 
9 

8 

9 

9 
10 


13 

7 

7 


7 
11 
26 
26 
29 
29 
29 


SYSTEM   IN   OPERATION 


221 


National  farm-loan  associations: — Continued 
reserves,  investment  directed  by  Farm  Loan 

Board 

Two  per  cent  retained  annually  after  20-pcr- 

cent  fund  accumulated 

Ten  per  cent  of  net  earnings  semiannually 

retained 

to  equal  20  per  cent  of  capital  stock 

secretary-treasurer,  appointment 

compensation  fixed  by  directors 

custodian  of  securities,  etc 

duties 

not  required  to  be  shareholder 

report 

shareholders'  individual  responsibility 

shares  must  be  canceled  on  retirement  of  cor- 
responding land-bank  stock 

special  provisions   

supervisory  authority  over,  by  Federal  Farm 

Loan  Board 

taxation,  exempted  from 

Newspapers: 

bulletins  of  Federal  Farm  Loan  Board  dis- 
tributed to 


Section 


o 

Oath  of  office: 

members  of  Federal  Farm  Loan  Board 

Organization  certificates : 

Federal  land  banks,  made  by  temporary  direc- 
tors   


Penalties: 
directors,  employees,  and  attorneys  of  land 

banks,  etc.,  unauthorized  fees  of 

embezzlement,  false  entry,  etc.,  punishment  for 
false  representation  in  relation  to  farm-loan 

bonds 

false  statement  in  application  for  loan 

forging  or  counterfeiting  bonds  of  land  banks 

or  associations 

land-bank  appraisers  for  willful  overvaluation 

of  land  offered  as  security 


24 

24 

24 
24 
7 
7 
7 
7 
7 
7 
9 

7 
9 

17 
26 


Page 


168 
I67 

167 
167 

128 

128 

128 

I28-9 

131 
129 
I36 

133 

135-137 

155 
169-170 


1 16-7 


"3 


1 1 8-9 


31 
31 

177 

178 

31 
31 

179 
175 

31 

176 

31 

175 

222 


THE   FEDERAL  FARM-LOAN 


Section 


Penalties : — Continued 

land-bank  examiners,  for  accepting  loan  or 
gratuity  from  land  bank  or  association .  .  . 

must  not  disclose  names  of  borrowers 

loan  committee,  for  willful  overvaluation  of 

land  offered  as  security 

provisions  for 

Personnel : 

Conference  Committee 

House  Committee  on  Banking  and  Currency . 

Joint  Committee  on  Rural  Credits 

Senate  Committee  on  Banking  and  Currency . 

United  States  Commission 

Property : 

Federal  land  banks  may  buy,  sell,  or  lease,  for 

business 

national  farm-loan  associations  may  own .... 

real  estate,  acquired  in  satisfaction  of  debts 

may  be  held  limited  time  by  Federal  land 

banks 

of  land  banks  and  associations  not  exempted 

from  taxation 

real  property  of  land  banks  and  associations 

taxable  as  other  real  property 

receiver  of  insolvent  association  may  sell.  .  .  . 
Public  money: 

certificate  bearing  interest  issued  for  deposits . 
certificate  of  deposit  redeemed  at  discretion  of 

Secretary  of  the  Treasury 

deposits,  farm-loan  bonds  accepted  as  security 

for 

in  Federal  land  banks  authorized 

limit  placed  on  aggregate 

provisions  for 

Government  depositaries,  land  banks  desig- 
nated as 

investment  in  mortgage  loans  or  farm-loan 
bonds  prohibited 

R 
Real  estate.    See  Property. 
Reappraisal.    See  Appraisal. 
Receivers : 

appointment , . , 

•Sea  note  page  185. 


31 
3i 

31 
31 


29 


Page 


175-6 
177-8 

175 
175-179 


13 

II 

146 
139 

13 

146 

26 

169 

26 
29 

169-170 
172 

32 

180 

32 

180 

27 
32 
32 
32 

170 
180 
180 
180 

6 

126 

6 

127 

171 


SYSTEM   IN   OPERATION 


223 


Receivers : — Continued 

bond  required 

national    farm-loan    associations,    collections 
deposited  with  Treasurer  of  United  State: 

contingent  liability  determined  by 

report  to  Farm  Loan  Board 

to  settle  debts  and  sell  property 

to  take  books  and  collect  assets 

Redemption : 

assignment  of  mortgages  and  bonds  to  farm- 
loan  registrar  must  provide  for  right  of. . 
Registrars.     See  Farm-loan  registrars. 
Reports: 

appraisal,  forms  prescribed  by  Federal  Farm 

Loan  Board 

Federal  Farm  Loan  Board,  annual 

Federal  land  banks,  employees,  schedule  of 

salaries  to  be  submitted 

land-bank  appraisers,  upon  land  offered  for 

security 

land-bank  examiners,  made  to  Farm   Loan 

Commissioner  semiannually 

loan  committee,  on  lands  offered  for  security, 
national   farm-loan    associations    increase   in 

capital  stock,  quarterly 

receiver  of  farm-loan  associations,  to  Farm 

Loan  Board 

Reserves : 

land  banks,  amounts  defaulted  debited  to.  .  . 

dividends  not  paid  if  impaired 

investment  directed  by  Farm  Loan  Board . 
Five  per  cent  retained  annually  after  20-per- 
cent fund  accumulated 

provisions  for 

to  equal  20  per  cent  of  capital  stock 

to  retain  25  per  cent  of  net  earnings  semi- 
annually   

national  farm-loan  associations,  dividends  not 

paid  if  impaired 

investment  directed  by  Farm  Loan  Board .  . 
Two  per  cent  retained  annually  after  20-per- 
cent fund  accumulated 

provisions  for 

to  equal  20  per  cent  of  capital  stock 


Section 


29 


29 

172 

29 

173 

29 

172 

29 

172 

29 

172 

19 


Page 


171 


10 

3 

138 
116 

3 

1 1 5-6 

10 

138 

28 

171 

10 

137 

8 

134-5 

29 

172 

23 
23 
23 

166 
166 
167 

23 
23 

166 

166-7 

166 

23 

167 

24 

24 

167 
168 

24 
24 
24 

167 

167-8 

167 

224 


THE   FEDERAL   FARM-LOAN 


Reserves : — Contin  ucd 

to  retain  10  per  cent  of  net  earnings  semi- 
annually   

Retirement: 

farm-loan  bonds,  at  option  of  land  banks  after 

five  years 

rules  prescribed  by  Farm  Loan  Board 

S 

Secret  Service  Division: 

available  to  detect  person  or  persons  violating 

provisions  of  Section  31 

Secretary  of  the  Treasury: 

capital  stock  of  Federal  land  banks,  must  sub- 
scribe for  shares  not  otherwise  taken .... 
certificate  for  Government  deposits  redeemed 

at  discretion  of 

direct  use  of  Secret  Service  Division  to  detect 

violations  of  Section  31 

farm-loan  bonds,  expenses  incurred  in  prepa- 
ration of,  to  be  paid  by 

plates,  dies,  etc.,  to  be  retained  by 

preparation  in  form  as  approved  by  Farm 

Loan  Board 

reimbursed  by  Farm  Loan  Board  for  ex- 
pense of  preparing 

Federal  Farm  Loan  Board,  date  and  place  of 

first  meeting  fixed  by 

Government  depositaries,  designated  by.  .  .  . 

required  to  give  security 

member  of  Federal  Farm  Loan  Board 

receiver's  collections,  deposited  at  interest.  .  . 
temporary  deposits  of  public  money  in  Federal 

land  banks 

Secretary-treasurer,  national  farm-loan  associa- 
tions: 
affidavit  relative  to  organizers  of  farm-loan 

associations 

appointment 

bond  required 

compensation  fixed  by  directors 

custodian  of  securities,  records,  etc 

duties 


Section 


20 
20 


31 

5 

32 
31 

20 
20 

20 

20 

3 
6 
6 

3 
29 

32 


SYSTEM    IN   OPERATION 


225 


Section 


Page 


Secretary-treasurer: — Continued 

mortgage  loan  applications  filed  with 

not  required  to  be  shareholder 

quarterly  report  required 

salary  and  expenses 

statements  of  condition  of  association  required 

supervision  of  loans  by 

Securities: 

additional,  land  banks  required  to  give 

application  for  bond  issue  granted  or  refused 

after  investigation 

bonds  of  United  States  or  first  mortgages  on 
farm  lands  as  collateral  for  farm-loan 

bonds 

capital  stock,  of  farm-loan  associations  held 

as  collateral 

of  Federal  land  banks  held  as  collateral 

collateral  bonds  and  mortgages  may  be  sub- 
stituted by  similar  mortgages,  etc 

collateral  for  bonds,  deposited  as  approved  by 

Farm  Loan  Board 

deposited  with  farm-loan  registrar 

farm-loan  bonds  accepted  for  public  deposits.  . 
farm-loan  registrar,  can  receive  only  qualified 

first  mortgages  to  secure  bond  issue 

must  return  collateral  security  to  land  banks 

upon  rejection  of  bond  issue 

must  see  that  collateral  security  covers  out- 
standing farm-loan  bonds 

shall  retain  in  his  custody  collateral  security 

on  approval  of  bond  issue 

Federal  land  banks,  may  accept  for  deposit, 

from  national  farm-loan  associations 

may  deposit  in  Federal  Reserve  member 

banks 

Government  deposits,  securities  required 

temporary,  securities  required 

investments  representing  trust  funds  to  be  de- 
posited with  registrar  as  substituted  col- 
lateral   

mortgages,  ineligible  for  farm-loan  bonds  dur- 
ing continuance  of  defective  State  laws .  .  . 
ineligible  for  farm-loan  bonds  previous  to 
examination  of  State  laws 


9 

137 

7 

131 

7 

129 

7 

130 

7 

129 

7 

129 

19 


18 


159 


156-7 


lf»2 


8 

134 

7 

133 

22 

163 

19 

158 

2 

112 

27 

170 

19 

158 

19 

157 

19 

159 

19 

157-8 

13 

146 

13 

146 

6 

127 

32 

180 

22 

165 

30 

171 

3o 

174-5 

226 


THE   FEDERAL  FARM-LOAN 


Securities : — -Continued 

may  be  hypothecated  by  Federal  land  banks 

as  security  for  farm-loan  bonds 

on  farm  lands  tendered  as  collateral  security 

for  bond  issue 

schedule  to  accompany  application  for  bond 

issue 

transmitted  by  registrar 

United  States  bonds  tendered  by  land  banks 

for  bond  issue 

withdrawal  of  collateral  on  surrender  of  farm- 
loan  bonds 

Senate: 

borrowers'  names  may  be  ordered  disclosed 

by 

Federal  Farm  Loan  Act,  chronology  of  bill 

(S.  2986)  in  Sixty-fourth  Congress 

personnel  of  committees  which  considered 
Federal  farm-loan  bills,  Sixty-fourth  Con- 
gress   

Shareholders : 

joint-stock  land  banksj  responsibility 

same  voting  privileges  as  shareholders  in  na- 
tional banking  associations , 

taxable  on  shares  as  in  national  banks. 
national  farm-loan  associations.directors  must 

be 

must  be  borrowers 

part  of  loan  may  be  used  to  be  pay  for 

stock 

power  to  indorse  mortgages  taken  by  Fed- 
eral land  banks 

responsibility 

stock  interests  assumed  by  purchaser  of 

mortgaged  land 

stock  interests  of  borrower  assumed  by  legal 

representatives  in  case  of  death 

voting  limit 

State  legislation 

States: 

agencies  of  Federal  land  banks  limited   to 

banking  corporations  chartered  by 

Governor,  statement  prepared  by  Farm  Loan 

Board  on  request 

*Sce  note  page  185. 


Section 


13 

18 

18 
18 


31 

* 


16 


16 
26 


II 

9 
12 

12 

8 
30 

15 
30 


SYSTEM   IN   OPERATION 


227 


Section 


Pace 


States : — Continued 

laws,  examination,  by  Farm  Loan  Commis- 
sioner   

examination,  commissioner  may  require  aid 

of  Attorney  General 

examination,  special  counsel  may  be  em- 
ployed   

Stockholders: 

borrowers   through   agents   of   Federal   land 
banks  must  subscribe  stock  in  Federal 

land  bank 

Federal  land  banks  cannot  accept  deposits  ex- 
cept from 

Surety  bonds.    See  Bonds,  official. 

T 

Taxation : 

exemption  from 

farm-loan  bonds  exempted  from 

Federal  land  banks  exempted  from 

joint-stock  land  banks,  shareholders  taxable 

on  shares,  as  in  national  banks 

mortgages  exempted  from 

national  farm-loan  associations  exempted  from 
real  estate  held  by  bank  or  association  not  ex- 
empted   

real  property  of  land  banks  and  associations 

taxable  as  other  real  property 

Taxes: 

on  mortgaged  land,  borrower  shall  pay 

report  on  delinquent  taxes  required 

taxes  paid  by  mortgagee  shall  become  part 

of  mortgage  debt 

Titles.     See  Land  titles. 
Treasurer  of  United  States: 

receiver  of  farm-loan  associations  to  pay  over 

collections  to 

Treasury : 

farm-loan  bonds  to  be  held  subject  to  delivery 

by  order  of  Farm  Loan  Board 

Treasury,  Secretary  of.     See  Secretary  of  the 

Treasury. 
Trust  funds: 

investment  in  farm-loan  bonds 


30 
30 
30 

15 
14 


26 

21,26 

26 

26 
26 
26 

26 

26 

12 

7 


29 


20 


174 

175 
175 

148 

H7 


168-9 

162,  169 

168-9 

169 

169 

168-9 

169 

169 

J  43 
130 

143 


172 


160 


'■7 


170 


THE   FEDERAL   FARM-LOAi>l 


Section 

Page 

u 

United  States: 

division  into  land-bank  districts 

4 
* 

117 
* 

see  also  Government  of  United  States. 
United  States  bonds.    See  Bonds,  United  States. 
United  States  Commission: 

members 

V 

Voluntary  Liquidation.     Sec  liquidation. 

*See  note  page  185. 


APPENDIX   C 

BIBLIOGRAPHY 

The  following  list  of  books,  documents,  and  pam- 
phlets, while  not  exhaustive,  is  sufficiently  complete 
for  the  student  who  seeks  a  comprehensive  knowledge 
of  the  subject  of  rural  credits.  Brief  observations  are 
made  on  the  general  nature  of  the  books  listed,  with  a 
view  to  further  assisting  the  student.  The  documents 
and  pamphlets  are  in  the  nature  of  official  reports  or 
statements,  their  contents  being  indicated  by  their 
longer  title. — The  Author. 

BOOKS,  DOCUMENTS,  AND  PAMPHLETS  ON  RURAL  CREDITS 
AND   RELATED    SUBJECTS 

Agricultural  Credit,  Edna  D.  Bullock.  This  is  a  com- 
pilation of  articles  on  rural  credits  in  different 
countries,  written  by  various  authorities  and  edited 
by  Edna  D.   Bullock   (White  Plains,  New  York, 

1915)- 
Agricultural  Credit  and  Co-operation  in  Germany,  J.  A. 
Cahill.  Report  to  the  British  Board  of  Agriculture 
and  Fisheries  of  an  Inquiry  into  Agricultural  Credit 
and  Agricultural  Co-operation  in  Germany  (Wash- 
ington, 1 9 14),  (Sixty-third  Congress,  First  Session, 
Senate  Document  17). 


23o  THE   FEDERAL  FARM-LOAN 

Agricultural  Credit:  General  Theory  of  Co-operative 
Credit  in  France  and  Other  Foreign  Countries, 
Maurice  Du  Fourmantellc,  tr.  from  the  French  by 
Pauline  Carter  Biddle  (Washington,  191 2),  (Sixty- 
second  Congress,  Second  Session,  Senate  Docu- 
ment 572). 

"Agricultural  Economics,"  H.  C.  Taylor,  chap,  xvi, 
in  Farm  Credit  and  the  Rate  oj  Interest  (New  York, 
1919). 

American  Commission  to  Investigate  and  Study 
Agricultural  Credit  in  Europe.  Agricultural  Co- 
operation and  Rural  Credit  in  Europe,  Report. 
Part  I,  Observations.  Part  II,  Minority  Report, 
Observations  and  Recommendations  (Washington, 
1914),  (Sixty- third  Congress,  Second  Session,  Senate 
Document  261). 

American  Commission  to  Investigate  and  Study 
Agricultural  Credit  in  Europe,  and  United  States 
Commission  to  Investigate  Rural  Credit,  Report. 
Part  I,  Agricultural  Co-operation  and  Rural  Credit 
in  Europe.  Part  II,  Bibliography  (Washington, 
1 9 13),  (Sixty-third  Congress,  Second  Session,  Senate 
Document  214). 

Co-operative  Credit  in  Certain  European  Countries  and 
Their  Relation  to  Agricultural  Interests  (1892),  E. 
T.  Peters  (Washington,  191 5),  (United  States  De- 
partment of  Agriculture,  Miscellaneous  Series, 
Report  No.  3). 

Co-operative  Credit  in  the  United  States,  H.  W.  Wolff. 
Mr.  Wolff,  an  English  authority  on  rural  credits, 
has  written  many  able  treatises  on  the  subject.  In 
this  book  he  has  treated  the  subject  in  a  different 


SYSTEM   IN   OPERATION  231 

manner.  While  it  is  of  value  as  a  philosophical 
exposition  of  rural  credits  by  one  whose  knowledge 
of  the  subject  is  considerable,  it  lacks  the  definite, 
as  distinguished  from  the  philosophic,  method  of 
treatment  (New  York,  191 7). 

Costs  and  Sources  of  Farm-mortgage  Loans  in  the 
United  States,  C.  W.  Thompson  (United  States 
Department  of  Agriculture,  Bulletin  No.  384). 

Federal  Farm  Loan  Board.  First  Annual  Report, 
covering  the  period  from  the  organization  of  the 
board  up  to  November  30,  191 7  (Washington,  1918), 
(Sixty-fifth  Congress,  Second  Session,  House  Docu- 
ment 714). 

Federal  Farm  Loan  Board.  Second  Annual  Report, 
covering  the  period  for  the  fiscal  year  ended  Novem- 
ber 30,  19 1 8  (Washington,  1919),  (Sixty-fifth  Con- 
gress, Third  Session,  House  Document  1624). 

Federal  Farm  Loan  Board.  Third  Annual  Report, 
covering  the  period  for  the  fiscal  year  ended  Novem- 
ber 30,  1919  (Washington,  1920),  (Sixty-fifth  Con- 
gress, Second  Session,  House  Document  553). 

Federal  Farm  Loan  Board.  Fourth  Annual  Report, 
covering  the  period  for  the  year  ended  December 
31,  1920  (Washington,  1921),  (Sixty-sixth  Congress, 
Third  Session,  House  Document  998). 

Federal  Farm  Loan  Board.  Circular  No.  1.  National 
Farm  Loan  Associations — Organization,  Manage- 
ment, Powers,  and  Limitations  (Washington,  191 7). 

Federal  Farm  Loan  Board.  Circular  No.  2.  How 
Farmers  May  Form  a  National  Farm  Loan  Asso- 
ciation (Washington,  19 19). 

Federal  Farm  Loan  Board.  Circular  No.  3.  (Revised.) 


232  THE   FEDERAL  FARM-LOAN 

The  Improved  Farm  Mortgage.  A  story  illustrating 
the  practical  application  of  the  Federal  Farm  Loan 
Act  (Washington,  191 9). 

Federal  Farm  Loan  Board.  Circular  No.  4.  The 
Federal  Farm  Loan  Act  (Washington,  191 7). 

Federal  Farm  Loan  Board.  Circular  No.  5.  The 
Farm  Loan  Primer.  Here  you  will  find  in  brief 
form  answers  to  the  questions  most  frequently 
asked  about  the  Federal  Farm  Loan  Act  (Washing- 
ton, 1919). 

Federal  Farm  Loan  Board.  Circular  No.  7.  Killing 
Off  Mortgages.  A  description  of  the  methods  of 
Amortization  and  their  benefits  to  borrowers  (Wash- 
ington, 19 1 9). 

Federal  Farm  Loan  Board.  Circular  No.  10.  Rulings 
and  Regulations  of  the  Federal  Farm  Loan  Board, 
to  June  30,  1 91 9,  in  matters  pertaining  to  the 
Federal  Farm  Loan  Act  (Washington,  19 19). 

Federal  Farm  Loan  Board.  Circular  No.  11.  Amend- 
ments to  the  Federal  Farm  Loan  Act  (Washington, 
1920). 

Federal  Farm-loan  System,  TIte.  Herbert  Myrick  (New 
York,  19 1 6). 

How  to  Use  Farm  Credit,  T.  N.  Carver  (Washington, 
1 9 14),  (United  States  Department  of  Agriculture, 
Farmers'  Bulletin  593). 

International  Institute  of  Agriculture.  Adaptation  of 
the  European  Credit  System  to  Meet  the  Needs  of 
the  American  Farmer  (Washington,  191 2),  (Sixty- 
second  Congress,  Second  Session,  Senate  Document 

855)- 
International  Institute  of  Agriculture.    Outline  of  the 


SYSTEM    IN   OPERATION  233 

European  Co-operative  Credit  Systems  (Washing- 
ton, 191 2),  (Sixty-second  Congress,  Second  Session, 
Senate  Document,  574). 

International  Institute  of  Agriculture.  "The  Way 
Out  of  the  Rut."  European  Co-operative  Rural 
Credit  Systems  (Washington,  191 2),  (Sixty-second 
Congress,  Third  Session,  Senate  Document  966). 

Joint  Committee  on  Rural  Credits  of  the  United 
States  Congress.  Report  on  Rural  Credits,  including 
a  draft  of  a  proposed  bill  to  provide  a  system  of 
land-mortgage  credits  in  the  United  States  under 
Federal  supervision  (Washington,  1916),  (Sixty- 
fourth  Congress,   First  Session,  House  Document 

494)- 

Land  Credits,  Dick  T.  Morgan.  A  Plea  for  the  Amer- 
ican Farmer.  This  book  was  written  during  the 
height  of  the  discussion  on  rural  credits,  just  pre- 
ceding the  passage  of  the  Federal  Farm  Loan  Act. 
It  contains  many  worthy  and  constructive  sugges- 
tions concerning  the  rural-credit  bills  then  pending, 
and  is  also  of  value  to  the  student  as  a  historical 
reference  book  (New  York,  191 5). 

Notes  on  Agricultural  Credit  Systems  Abroad,  Le  Roy 
Hodges  (Sixty-second  Congress,  Third  Session, 
House  Document  1435). 

"Outlines  of  Economics,"  R.  T.  Ely,  in  Farm  Indebted- 
ness and  Agricultural  Credit,  pp.  609-615  (New 
York,  191 9). 

Principles  of  Rural  Credits,  James  B.  Morman.  The 
material  for  this  book  was  taken  largely  from  Senate 
Document  No.  214,  Sixty-third  Congress,  which 
constituted  the  report  of  both  the  United  States 


234  THE   FEDERAL  FARM-LOAN 

and  the  American  commissions.  Not  only  does  the 
author  place  the  material  in  this  immense  report  in 
readable  form,  but  draws  many  valuable  lessons 
from  it  (New  York,  19 15). 

Rural  Credit  in  Germany,  H.  C.  Price  (Ohio  State  Uni- 
versity, 1 9 13). 

Rural  Credits,  Frederic  J.  Haskin  (Washington,  1913), 
(Sixty- third  Congress,  Second  Session,  Senate  Docu- 
ment 200). 

Rural  Credits:  Land  and  Co-operative,  M.  T.  Herrick 
and  R.  Ingalls.  This  book  is  the  most  widely  read 
and  best-known  presentation  of  the  subject.  It 
deals  largely  with  rural-credit  systems  established 
in  foreign  countries,  although  there  are  a  number  of 
chapters  outlining  the  forms  and  nature  of  agri- 
cultural credit  which  are  of  exceptional  value  (New 
York,  1919). 

United  States  Commission  to  Investigate  Agricultural 
Credit.  Land-mortgage  or  Long-term  Credit;  Per- 
sonal or  Short-term  Credit  (Washington,  1914), 
(Sixty-third  Congress,  Second  Session,  Senate  Docu- 
ment 380,  Parts  I— III). 

United  States  Commission  to  Investigate  Agricultural 
Credit.  National  Farm-land  Banks.  Interpreta- 
tion of  H.  R.  12585.  A  bill  to  establish  Farm-land 
banks  (Washington,  19 14),  (Sixty- third  Congress, 
Second  Session,  House  Document  679). 

Unites  States  Department  of  Agriculture.  Farmers' 
Bulletin  792.  How  the  Federal  Farm  Loan  Act 
Benefits  the  Farmer,  C.  W.  Thompson  (Washington, 
1917). 

United    States.      National    Monetary    Commission. 


SYvSTEM   IN   OPERATION  235 

Canadian  Banking  System.  Co-operative  People's 
Banks  of  Canada,  pp.  149-173,  Alphonse  Dejardins. 

United  States.  National  Monetary  Commission. 
Miscellaneous  Articles  on  German  Banking,  chap.  v. 
The  Land  Mortgage  Associations  (Landschaftcn) , 
Dr.  J.  Hermes  (Washington,  19 10). 

United  States.  State  Department.  Information 
Division.  Preliminary  Report  on  Land  and  Agri- 
cultural Credit  in  Europe,  including  the  letter  of 
President  William  H.  Taft  to  the  Governors  of 
States  and  the  Recommendations  of  Ambassador 
Myron  T.  Herrick  in  connection  with  the  proposal  of 
President  Taft  to  introduce  Co-operative  Credit  in 
the  United  States  (Washington,  191 2),  (Sixty- 
second  Congress,  Third  Session,  Senate  Document 
967). 

16 


APPENDIX   D 
SUPREME  COURT  OF  THE  UNITED  STATES 


No.   199. — October  Term,   1920 


Charles  E.  Smith  J  Appeal  from  the  Dis- 

Appellant,  I     trict    Court    of    the 

vs.  >     United  States  for  the 

Kansas  City  Title  &  TrustV     Western  District  of 

Company,  et  al.,  Appellees,  r     Missouri. 

[February  28,  192 1.] 

Mr.  Justice  Day  delivered  the  opinion  of  the  Court. 

A  bill  was  filed  in  the  United  States  District  Court 
for  the  Western  Division  of  the  Western  District  of 
Missouri  by  a  shareholder  in  the  Kansas  City  Title 
&  Trust  Company  to  enjoin  the  Company,  its  offi- 
cers, agents  and  employees  from  investing  the  funds 
of  the  Company  in  farm-loan  bonds  issued  by  Fed- 
eral Land  Banks  or  Joint  Stock  Land  Banks  under 
authority  of  the  Federal  Farm  Loan  Act  of  July  17, 
1916,  39  Stat.  360,  as  amended  January  18,  1918, 
40  Stat.  431. 

The  relief  was  sought  on  the  ground  that  these 
Acts  were  beyond  the  constitutional  power  of  Con- 


SYSTEM   IN   OPERATION  237 

gress.  The  bill  avers  that  the  Board  of  Directors  of 
the  Company  are  about  to  invest  its  funds  in  the 
bonds  to  the  amount  of  $10,000  in  each  of  the 
classes  described,  and  will  do  so  unless  enjoined  by 
the  court  in  this  action.  The  bill  avers  the  formation 
of  twelve  Federal  Land  Ranks,  and  twenty-one  Joint 
Stock  Land  Banks  under  the  provisions  of  the  Act. 

As  to  the  Federal  Land  Banks,  it  is  averred  that 
each  of  them  has  loaned  upon  farm  lands  large 
amounts  secured  by  mortgage,  and  after  depositing 
the  same  with  the  Farm  Loan  Registrar,  has  exe- 
cuted and  issued  collateral  trust  obligations  called 
Farm  Loan  Bonds,  secured  by  the  depositing  of  an 
equivalent  amount  of  farm  mortgages  and  notes; 
and  that  each  of  said  Federal  Land  Banks  has  sold, 
and  is  continuing  to  offer  for  sale,  large  amounts  of 
said  farm-loan  bonds.  The  bill  also  avers  that  vari- 
ous persons  in  different  parts  of  the  United  States 
have  organized  twenty-one  Joint  Stock  Land  Banks, 
the  capital  stock  of  which  is  subscribed  for  and 
owned  by  private  persons;  that  the  Joint  Stock 
Land  Banks  have  deposited  notes  and  mortgages 
with  the  Farm  Loan  Registrar,  and  issued  an  equiva- 
lent amount  of  collateral  trust  obligations  called 
Farm  Loan  Bonds,  which  have  been  sold  and  will 
be  continued  to  be  offered  for  sale  to  investors  in 
large  amounts  in  the  markets  of  the  country.  A 
statement  is  given  of  the  amount  of  deposits  by  the 
Secretary  of  the  Treasury  with  the  Federal  Land 
Banks,  for  which  the  banks  have  issued  their  cer- 
tificates of  indebtedness  bearing  interest  at  2%  per 
annum.     It  is  averred  that  on  September  30,  1919, 


238  THE   FEDERAL  FARM-LOAN 

Federal  Land  Banks  owned  United  States  bonds  of 
the  par  value  of  $4,230,805;  and  the  Joint  Stock 
Land  Banks  owned  like  bonds  of  the  par  value  of 
$3,287,503  on  August  31,  1 919;  that  pursuant  to 
the  provisions  of  the  Act  the  Secretary  of  the  Treas- 
ury has  invested  $8,892,130  of  the  public  funds  in 
the  capital  stock  of  the  Federal  Land  Banks,  and 
that  on  July  1,  19 19,  the  Secretary  of  the  Treasury 
on  behalf  of  the  United  States  held  $8,265,809  of 
the  capital  stock  of  the  Federal  Land  Banks;  that 
pursuant  to  the  provisions  of  Section  32  of  the  Act, 
as  amended,  the  Secretary  of  the  Treasury  has  pur- 
chased farm-loan  bonds  issued  by  the  Federal  Land 
Banks  of  the  par  value  of  $149,775,000;  that  up  to 
September  30,  1919,  bonds  have  been  issued  under 
the  Act  by  the  Federal  Land  Banks  to  the  amount 
of  $285,600,000,  of  which  about  $135,000,000  are 
held  in  the  Treasury  of  the  United  States,  purchased 
under  the  authority  of  the  amendment  of  January 
19,  1918;  that  up  to  September  30,  1919,  twenty- 
seven  Joint  Stock  Land  Banks  have  been  incor- 
porated under  the  Act,  having  an  aggregate  capital 
of  $8,000,000,  all  of  which  has  been  subscribed  and 
$7,450,000  paid  in;  that  bonds  have  been  issued  by 
Joint  Stock  Land  Banks  to  the  amount  of  $41,- 
000,000,  which  are  now  in  the  hands  of  the  public; 
that  the  Secretary  of  the  Treasury  up  to  the  time  of 
the  filing  of  the  bill  has  not  designated  any  of  the 
Federal  Land  Banks  nor  the  Joint  Stock  Land  Banks 
as  depositaries  of  public  money,  nor  except  as  stated 
later  in  the  bill,  has  he  employed  them  or  any  of 
them  as  financial  agents  of  the  Government,  nor 


SYSTEM   IN   OPERATION  239 

have  they  or  any  of  them  performed  any  duties  as 
depositaries  of  public  money,  nor  have  they  or  any 
of  them  accepted  any  deposits  or  engaged  in  any 
banking  business.  The  bill  avers  that  during  the 
summer  of  19 18  the  Federal  Land  Banks  at  Wichita, 
St.  Paul  and  Spokane  were  designated  as  financial 
agents  of  the  Government  for  making  seed-grain 
loans  to  farmers  in  drought-stricken  sections,  the 
President  having  at  the  request  of  the  Secretary  of 
Agriculture  set  aside  $5,000,000  for  that  purpose 
out  of  the  $100,000,000  war  funds.  The  three  banks 
mentioned  made  upwards  of  15,000  loans  of  that 
character,  aggregating  a  sum  upwards  of  $4,500,000, 
and  are  now  engaged  in  collecting  these  loans,  all  of 
which  are  secured  by  crop  liens;  that  these  banks 
act  in  that  capacity  without  compensation,  receiv- 
ing only  the  actual  expenses  incurred. 

Section  27  of  the  Act  provides  that  farm-loan 
bonds  issued  under  the  provisions  of  the  Act  by  Fed- 
eral Land  Banks  or  Joint  Stock  Land  Banks  shall 
be  a  lawful  investment  for  all  fiduciary  and  trust 
funds,  and  may  be  accepted  as  security  for  all  public 
deposits.  The  bill  avers  that  the  defendant  Trust 
Company  is  authorized  to  buy,  invest  in  and  sell 
Government,  State  and  municipal  and  other  bonds, 
but  it  cannot  buy,  invest  in  or  sell  any  such  bonds, 
papers,  stocks  or  securities  which  are  not  authorized 
to  be  issued  by  a  valid  law  or  which  are  not  invest- 
ment securities,  but  that  nevertheless  it  is  about  to 
invest  in  farm-loan  bonds ;  that  the  Trust  Company 
has  been  induced  to  direct  its  officers  to  make  the 
investment  by  reason  of  its  reliance  upon  the  pro- 


240  THE   FEDERAL  FARM-LOAN 

visions  of  the  Farm  Loan  Acts,  especially  sections 
21,  26  and  27,  by  which  the  Farm  Loan  Bonds  are 
declared  to  be  instrumentalities  of  the  Government 
of  the  United  States,  and  as  such  with  the  income 
derived  therefrom,  are  declared  to  be  exempt  from 
Federal,  State,  Municipal  and  local  taxation,  and 
are  further  declared  to  be  lawful  investments  for  all 
fiduciary  and  trust  funds.  The  bill  further  avers 
that  the  Acts  by  which  it  is  attempted  to  authorize 
the  bonds  are  wholly  illegal,  void  and  unconstitu- 
tional and  of  no  effect  because  unauthorized  by  the 
Constitution  of  the  United  States. 

The  bill  prays  that  the  Acts  of  Congress  authoriz- 
ing the  creation  of  the  banks,  especially  sections  26 
and  27  thereof,  shall  be  adjudged  and  decreed  to  be 
unconstitutional,  void  and  of  no  effect,  and  that  the 
issuance  of  the  farm-loan  bonds,  and  the  taxation 
exemption  feature  thereof,  shall  be  adjudged  and 
decreed  to  be  invalid. 

The  First  Joint  Stock  Land  Bank  of  Chicago  and 
the  Federal  Land  Bank  of  Wichita,  Kansas,  were 
allowed  to  intervene  and  became  parties  defendant 
to  the  suit.  The  Kansas  City  Title  &  Trust  Com- 
pany filed  a  motion  to  dismiss  in  the  nature  of  a 
general  demurrer,  and  upon  hearing  the  District 
Court  entered  a  decree  dismissing  the  bill,  from  this 
decree  appeal  was  taken  to  this  court. 

No  objection  is  made  to  the  Federal  jurisdiction, 
either  original  or  appellate,  by  the  parties  to  this 
suit,  but  that  question  will  be  first  examined.  The 
Company  is  authorized  to  invest  its  funds  in  legal 
securities  only.     The  attack  upon  the  proposed  in- 


SYSTEM    IN   OPERATION  241 

vestment  in  the  bonds  described  is  because  of  the 

alleged  unconstitutionality  of  the  Acts  of  Congress 
undertaking  to  organize  the  banks  and  authorize  the 
issue  of  the  bonds.  No  other  reason  is  set  forth  in 
the  bill  as  a  ground  of  objection  to  the  proposed 
investment  by  the  Board  of  Directors  acting  in  the 
Company's  behalf.  As  diversity  of  citizenship  is 
lacking,  the  jurisdiction  of  the  District  Court  de- 
pends upon  whether  the  cause  of  action  set  forth 
arises  under  the  Constitution  or  laws  of  the  United 
States.    Judicial  Code,  Sec.  24. 

The  general  rule  is  that  where  it  appears  from  the 
bill  or  statement  of  the  plaintiff  that  the  right  to 
relief  depends  upon  the  construction  or  application 
of  the  Constitution  or  laws  of  the  United  States,  and 
that  such  Federal  claim  is  not  merely  colorable,  and 
rests  upon  a  reasonable  foundation,  the  District 
Court  has  jurisdiction  under  this  provision. 

At  an  early  date,  considering  the  grant  of  constitu- 
tional power  to  confer  jurisdiction  upon  the  Federal 
Courts,  Chief -Justice  Marshall  said : 

"A  case  in  law  or  equity  consists  of  the  right  of  the  one  party, 
as  well  as  of  the  other,  and  may  truly  be  said  to  arise  under  the 
Constitution  or  a  law  of  the  United  States  whenever  its  correct 
decision  depends  upon  the  construction  of  either,"  Cohens  v.  Vir- 
ginia, 6  Wheat.  264,  379;  and  again,  when  "the  right  or  title  set 
up  by  the  party  may  be  defeated  by  one  construction  of  the  Con- 
stitution or  law  of  the  United  States,  and  sustained  by  the  op- 
posite construction,"  Osborn  v.  Bank  of  the  United  States,  9 
Wheat.  738,  822.  These  definitions  were  quoted  and  approved 
in  Patton  v.  Brady,  184  U.  S.  608,  611,  citing  Gold  Washing  Co. 
v.  Keyes,  96  U.  S.  199,  201;  Tennessee  v.  Davis,  100  U.  S.  257; 
White  v.  Grecnhow,  114  U.  S.  307;  Railroad  Company  v.  Missis- 
sippi, 102  U.  S.  135,  139. 


242  THE   FEDERAL  FARM-LOAN 

This  characterization  of  a  suit  arising  under  the 
Constitution  or  laws  of  the  United  States  has  been 
followed  in  many  decisions  of  this  and  other  Federal 
courts.  See  Macon  Grocery  Company  v.  Atlantic 
Coast  Line,  215  U.  S.  501,  506,  507;  Shulthis  v. 
McDougal,  225  U.  S.  569,  §3.  The  principle  was 
applied  in  Brushaber  v.  Union  Pacific  Co.,  240  U.  S. 
1,  in  which  a  shareholder  filed  a  bill  to  enjoin  the 
defendant  corporation  from  complying  with  the  in- 
come tax  provisions  of  the  Tariff  Act  of  October  3, 
19 13.  In  that  case  while  there  was  diversity  of  citi- 
zenship, a  direct  appeal  to  this  court  was  sustained 
because  of  the  constitutional  questions  raised  in  the 
bill,  which  had  been  dismissed  by  the  court  below. 
The  repugnancy  of  the  statute  to  the  Constitution 
of  the  United  States,  as  well  as  grounds  of  equitable 
jurisdiction,  were  set  forth  in  the  bill,  and  the  right 
to  come  here  on  direct  appeal  was  sustained  because 
of  the  averments  based  upon  constitutional  objec- 
tions to  the  Act.  Reference  was  made  to  Pollock  v. 
Farmers'  Loan  &  Trust  Company,  157  U.  S.  429, 
where  a  similar  shareholder's  right  to  sue  was  main- 
tained, and  a  direct  appeal  to  this  court  from  a 
decree  of  the  Circuit  Court  was  held  to  be  authorized. 

In  the  Brushaber  case  the  Chief  Justice,  speaking 
for  the  Court  said: 

The  right  to  prevent  the  corporation  from  returning  and  pay- 
ing the  tax  was  based  upon  many  averments  as  to  the  repugnancy 
of  the  statute  to  the  Constitution  of  the  United  States,  of  the 
peculiar  relation  of  the  corporation  to  the  stockholders  and  their 
particular  interests  resulting  from  many  of  the  administrative 
provisions  of  the  assailed  act,  of  the  confusion,  wrong  and  multi- 
plicity of  suits  and  the  absence  of  all  means  of  redress  which 


SYSTEM   IN   OPERATION  243 

would  result  if  the  corporation  paid  the  tax  and  complied  with 
the  act  in  other  respects  without  protest,  as  it  was  alleged  it  was 
its  intention  to  do.  To  put  out  of  the  way  a  question  of  juris- 
diction, we  at  once  say  that  in  view  of  these  averments  and  the 
ruling  in  Pollock  v.  Farmers'  Loan  &  Trust  Company,  157  U.  S. 
429,  sustaining  the  right  of  a  stockholder  to  sue  to  restrain  a  cor- 
poration under  proper  averments  from  voluntarily  paying  a  tax 
charged  to  be  unconstitutional  on  the  ground  that  to  permit 
such  a  suit  did  not  violate  the  prohibitions  of  Section  3224,  Rev. 
Stat.,  against  enjoining  the  enforcement  of  taxes,  we  are  of 
opinion  that  the  contention  here  made  that  there  was  no  juris- 
diction of  the  cause  since  to  entertain  it  would  violate  the  provi- 
sions of  the  Revised  Statutes  referred  to  is  without  merit.  .  .  . 
Aside  from  averments  as  to  citizenship  and  residence,  recitals 
as  to  the  provisions  of  the  statute  and  statements  as  to  the  busi- 
ness of  the  corporation  contained  in  the  first  ten  paragraphs  of 
the  bill  advanced  to  sustain  jurisdiction,  the  bill  alleged  twenty- 
one  constitutional  objections  specified  in  that  number  of  para- 
graphs or  subdivisions.  As  all  the  grounds  assert  a  violation  of 
the  Constitution,  it  follows  that  in  a  wide  sense  they  all  charge  a 
repugnancy  of  the  statute  to  the  Sixteenth  Amendment  under  the 
more  immediate  sanction  of  which  the  statute  was  adopted. 

The  jurisdiction  of  this  court  is  to  be  determined 
upon  the  principles  laid  down  in  the  cases  referred  to. 
In  the  instant  case  the  averments  of  the  bill  show 
that  the  directors  were  proceeding  to  make  the  in- 
vestments in  view  of  the  Act  authorizing  the  bonds 
about  to  be  purchased,  maintaining  that  the  Act 
authorizing  them  was  constitutional  and  the  bonds 
valid  and  desirable  investments.  The  objecting 
shareholder  avers  in  the  bill  that  the  securities  were 
issued  under  an  unconstitutional  law,  and  hence  of 
no  validity.  It  is,  therefore,  apparent  that  the  con- 
troversy concerns  the  constitutional  validity  of  an  Act 
of  Congress  which  is  directly  drawn  in  question.  The 
decision  depends  upon  the  determination  of  this  issue. 


244  THE   FEDERAL  FARM-LOAN 

The  general  allegations  as  to  the  interest  of  the 
shareholder,  and  his  right  to  have  an  injunction  to 
prevent  the  purchase  of  the  alleged  unconstitutional 
securities  by  misapplication  of  the  funds  of  the  cor- 
poration, gives  jurisdiction  under  the  principles  set- 
tled in  Pollock  v.  Trust  Company,  and  Bruskabcr  v. 
Union  Pacific  Company,  supra.  We  are,  therefore, 
of  the  opinion  that  the  District  Court  had  jurisdic- 
tion under  the  averments  of  the  bill,  and  that  a 
direct  appeal  to  this  court  upon  constitutional 
grounds  is  authorized. 

We  come  to  examine  the  questions  presented  by 
the  attack  upon  the  constitutionality  of  the  legisla- 
tion in  question.  The  Federal  Farm  Loan  Act  is 
too  lengthy  to  set  out  in  full.    It  is  entitled: 

An  act  to  provide  capital  for  agricultural  development,  to 
create  standard  forms  of  investment  based  upon  farm  mortgage, 
to  equalize  rates  of  interest  upon  farm  loans,  to  furnish  a  market 
for  United  States  bonds,  to  create  government  depositaries  and 
financial  agents  for  the  United  States,  and  for  other  purposes. 

The  administration  of  the  Act  is  placed  under  the 
direction  and  control  of  a  Federal  Farm  Loan  Bureau 
established  at  the  seat  of  Government  in  the  Treas- 
ury Department,  under  the  general  supervision  of 
the  Federal  Loan  Board  consisting  of  the  Secretary 
of  the  Treasury  and  four  members  appointed  by  the 
President,  by  and  with  the  advice  and  consent  of 
the  Senate.  The  United  States  is  divided  into  twelve 
districts  for  the  purpose  of  establishing  Federal  Land 
Banks.  Each  of  the  banks  must  have  a  subscribed 
capital  of  not  less  than  $750,000,  divided  into  shares 
of  $5.00  each,  which  may  be  subscribed  for  by  any 


SYSTEM    IN   OPERATION  245 

individual,  firm  or  corporation,  or  by  the  govern- 
ment of  any  State,  or  of  the  United  States.  No 
dividends  shall  be  paid  on  the  stock  owned  by  the 
United  States,  but  all  other  stock  shall  share  in  divi- 
dend distributions  without  preference.  The  Federal 
Farm  Loan  Board  is  to  designate  five  directors  who 
shall  temporarily  manage  the  affairs  of  each  Federal 
Land  Bank,  and  who  shall  prepare  an  organization 
certificate  which,  when  approved  by  the  Federal 
Farm  Loan  Board  and  filed  with  the  Farm  Loan 
Commissioner,  shall  operate  to  create  the  bank  a 
body  corporate.  The  Federal  Farm  Loan  Board  is 
required  to  open  books  of  subscription  for  the  capital 
stock  of  each  Federal  Land  Bank,  and  if  within 
thirty  days  thereafter  any  part  of  the  minimum 
capitalization  of  $750,000  of  any  such  bank  shall 
remain  unsubscribed,  it  is  made  the  duty  of  the 
Secretary  of  the  Treasury  to  subscribe  the  balance 
on  behalf  of  the  United  States. 

The  Amendment  of  January  18,  191 8,  authorizes 
the  Secretary  of  the  Treasury  to  purchase  bonds 
issued  by  Federal  Land  Banks,  and  provides  that 
the  temporary  organization  of  any  such  bank  shall 
be  continued  so  long  as  any  farm-loan  bonds  shall 
be  held  by  the  Treasury,  and  until  the  subscription 
to  stock  in  such  bank  by  National  Farm  Loan  As- 
sociations shall  equal  the  amount  of  the  stock  held 
by  the  United  States  Government.  When  these 
conditions  are  complied  with  a  permanent  organi- 
zation is  to  take  over  the  management  of  the  bank, 
consisting  of  a  Board  of  Directors  composed  of  nine 
members,  three  of  whom  shall  be  known  as  district 


246  THE   FEDERAL  FARM-LOAN 

directors  and  shall  be  appointed  by  the  Farm  Loan 
Board,  who  shall  represent  the  public  interest,  six 
of  whom  to  be  known  as  local  directors  shall  be 
chosen  by  and  be  representative  of  national  farm- 
loan  associations. 

Federal  Land  Banks  are  empowered  to  invest  their 
funds  in  the  purchase  of  qualified  first  mortgages  on 
farm  lands  situated  within  the  Federal  Land  Bank 
District  within  which  they  are  organized  or  acting. 
Loans  on  farm  mortgages  are  to  be  made  to  co- 
operative borrowers  through  the  organization  of 
corporations  known  as  National  Farm  Loan  Asso- 
ciations, by  persons  desiring  to  borrow  money  on 
farm-mortgage  security  under  the  terms  of  the  Act. 
Ten  or  more  natural  persons  who  are  the  owners  of 
or  are  about  to  become  the  owners  of  farm  land 
qualified  as  security  for  mortgage  loans,  and  who 
desire  to  borrow  money  on  farm-mortgage  security, 
may  unite  to  form  a  National  Farm  Loan  Association. 
The  manner  of  forming  these  associations,  and  the 
qualifications  for  membership,  are  set  out  in  the  Act. 

A  loan  desired  by  each  such  person  must  be  for 
not  more  than  $10,000  nor  less  than  $100,  and  the 
aggregate  of  the  desired  loans  not  less  than  $20,000. 
The  application  for  loan  must  be  accompanied  by 
subscriptions  to  stock  of  a  Federal  Land  Bank  equal 
to  5%  of  the  aggregate  sum  desired  on  the  mort- 
gage loan.  Provision  is  made  for  appraisal  of  the 
land,  and  report  to  the  Federal  Farm  Loan  Board. 
No  persons  but  borrowers  on  farm-loan  mortgages 
shall  be  members  or  shareholders  of  National  Farm 
Loan  Associations. 


SYSTEM   IN   OPERATION  247 

Shareholders  in  Farm  Loan  Associations  are  made 
individually  responsible  for  the  debts  of  the  Asso- 
ciation to  the  extent  of  the  amount  of  the  stock 
owned  by  them  respectively,  in  addition  to  the 
amount  paid  in  and  represented  by  their  shares. 

When  any  National  Farm  Loan  Association  shall 
desire  to  secure  for  any  member  a  loan  on  first 
mortgage  from  the  Federal  Land  Bank  in  its  district, 
it  must  subscribe  to  the  capital  stock  of  the  Federal 
Land  Bank  to  an  amount  of  5%  of  such  loan,  which 
capital  stock  shall  be  held  by  the  Federal  Land 
Bank  as  collateral  security  for  the  payment  of  the 
loan,  the  Association  shall  be  paid  any  dividends 
accruing  and  payable  on  the  capital  stock  while  it 
is  outstanding.  Such  stock  may,  in  the  discretion 
of  the  directors  and  with  the  approval  of  the  Federal 
Farm  Loan  Board,  be  paid  off  at  par  and  retired, 
and  shall  be  so  retired  upon  the  full  payment  of  the 
mortgage  loan.  In  such  event,  the  National  Farm 
Loan  Association  must  pay  off  at  par  and  retire 
the  corresponding  shares  of  its  stock  which  were 
issued  when  the  Land  Bank  stock  so  retired  was 
issued;  but  it  is  further  provided  that  the  capital 
stock  of  the  Land  Bank  shall  not  be  reduced  to  less 
than  5%  of  the  principal  of  the  outstanding  farm- 
loan  bonds  issued  by  it.  The  shares  in  National 
Farm  Loan  Associations  shall  be  of  the  par  value 
of  $5.00  each. 

At  least  25%  of  that  part  of  the  capital  of  any 
Federal  Land  Bank  for  which  stock  is  outstanding 
in  the  name  of  National  Farm  Loan  Associations 
must  be  held  in  quick  assets.    Not  less  than  5%  of 


248  THE   FEDERAL   FARM-LOAN 

such  capital  must  be  invested  in  United  States  Gov- 
ernment Bonds. 

The  loans  which  Federal  Land  Banks  may  make 
upon  first  mortgages  on  farm  lands  are  provided  for 
in  Section  12  of  the  Act.  By  Section  13  these  banks 
are  empowered,  subject  to  the  provisions  of  the  Act, 
to  issue  and  sell  farm-loan  bonds  of  the  kind  de- 
scribed in  the  Act,  and  to  invest  funds  in  their  pos- 
session in  qualified  first  mortgages  on  farm  lands, 
to  receive  and  to  deposit  in  trust  with  the  Farm 
Loan  Registrar,  to  be  held  by  him  as  collateral 
security  for  farm-loan  bonds,  first  mortgages  upon 
farm  lands,  and,  with  the  approval  of  the  Farm 
Loan  Board,  to  issue  and  to  sell  their  bonds  secured 
by  the  deposit  of  first  mortgages  on  qualified  farm 
lands  as  collateral,  in  conformity  with  the  provisions 
of  Section  18  of  the  Act.  By  the  Amendment  of 
January  18,  19 18,  the  Secretary  of  the  Treasury  was 
empowered  during  the  years  19 18  and  191 9  to  pur- 
chase farm-loan  bonds  issued  by  Federal  Land  Banks 
to  an  amount  not  exceeding  $100,000,000  each  year, 
and  any  Federal  Land  Bank  was  authorized  at  any 
time  to  repurchase  at  par  and  accrued  interest,  for 
the  purpose  of  redemption  or  resale,  any  of  the  bonds 
so  purchased  from  it  and  held  in  the  United  States 
Treasury. 

It  is  also  provided  that  the  bonds  of  any  Federal 
Land  Bank  so  purchased  and  held  in  the  Treasury 
one  year  after  the  termination  of  the  pending  war 
shall,  upon  thirty  days'  notice  from  the  Secretary 
of  the  Treasury,  be  redeemed  and  repurchased  by 
such  bank  at  par  and  accrued  interest.     By  Section 


SYSTEM    IN   OPERATION  249 

15  it  is  provided  that  whenever,  after  the  Act  shall 
have  been  in  effect  for  one  year,  it  shall  appear  to 
the  Federal  Farm  Loan  Board  that  national  farm- 
loan  associations  have  not  been  formed  and  are  not 
likely  to  be  formed,  in  any  locality,  because  of  pecul- 
iar local  conditions,  the  Board  may  in  its  discretion 
authorize  Federal  Land  Banks  to  make  loans  on 
farm  lands  through  agents  approved  by  the  Board, 
on  the  terms  and  conditions  and  subject  to  the 
restrictions  prescribed  in  that  section. 

The  Act  also  authorizes  the  incorporation  of  Joint 
Stock  Land  Banks,  with  capital  provided  by  private 
subscription.  They  are  organized  by  not  less  than 
ten  natural  persons,  and  are  subject  to  the  require- 
ments of  the  provisions  of  Section  4  of  the  Act  so 
far  as  applicable.  The  board  of  directors  shall  con- 
sist of  not  less  than  five  members.  Each  shareholder 
shall  have  the  same  voting  privileges  as  the  holders 
of  shares  in  National  Banking  Associations,  and  shall 
be  held  individually  responsible,  equally  and  ratably, 
and  not  one  for  another,  for  all  contracts,  debts,  and 
engagements  of  such  bank  to  the  extent  of  the 
amount  of  stock  owned  by  them  at  the  par  value 
thereof,  in  addition  to  the  amount  paid  in  and  repre- 
sented by  their  shares.  The  Joint  Stock  Land  Bank 
is  authorized  to  do  business  when  capital  stock  to 
the  amount  of  $250,000  has  been  subscribed,  and 
one-half  paid  in  cash,  the  balance  remaining  subject 
to  call  by  the  Board  of  Directors,  the  charter  to  be 
issued  by  the  Federal  Farm  Loan  Board.  No  bonds 
shall  be  issued  until  the  capital  stock  is  entirely  paid 
up.    Except  as  otherwise  provided,  Joint  Stock  Land 


25o  THE   FEDERAL  FARM-LOAN 

Banks  shall  have  the  powers  of  and  be  subject,  to 
all  the  restrictions  and  conditions  imposed  on  Fed- 
eral Land  Banks  by  the  Act,  so  far  as  such  conditions 
or  restrictions  are  applicable. 

Federal  Land  Banks  may  issue  Farm  Loan  Bonds 
up  to  twenty  times  their  capital  and  surplus.  Joint 
Stock  Land  Banks  are  limited  to  the  issue  of  Farm 
Loan  Bonds  not  in  excess  of  fifteen  times  the  amount 
of  their  capital  and  surplus.  Joint  Stock  Land  Banks 
can  only  loan  on  first  mortgages  upon  land  in  the 
State  where  located,  or  in  a  State  contiguous  thereto. 
No  loan  on  mortgage  may  be  made  by  any  bank  at 
a  rate  exceeding  6%  per  annum  exclusive  of  amorti- 
zation payments.  Joint  Stock  Land  Banks  shall  in 
no  case  charge  a  rate  of  interest  on  farm  loans  which 
shall  exceed  by  more  than  i%  the  rate  established 
by  the  last  series  of  Farm  Loan  Bonds  issued  by 
them,  which  rate  shall  not  exceed  5%  per  annum. 

Provisions  for  the  issue  of  farm-loan  bonds  secured 
by  first  mortgages  on  farm  lands  or  United  States 
bonds,  as  collateral,  which  must  be  deposited  with 
the  Federal  Farm  Loan  Registrar,  are  made  for 
Federal  Land  Banks  and  Joint  Stock  Land  Banks, 
in  each  case  the  issue  is  made  subject  to  the  approval 
of  the  Federal  Farm  Loan  Board.  The  farm-loan 
mortgages,  or  United  States  bonds,  which  constitute 
the  collateral  security  for  the  bonds,  must  be  de- 
posited with  the  Farm  Loan  Commissioner. 

Section  26  of  the  Act  provides  as  follows: 

That  every  Federal  land  bank  and  every  national  farm-loan 
association,  including  the  capital  and  reserve  or  surplus  therein 
and  the  income  derived  therefrom,  shall  be  exempt  from  Federal, 


SYSTEM   IN   OPERATION  251 

State,  municipal,  and  local  taxation,  except  taxes  upon  real  estate 
held,  purchased  or  taken  by  said  bank  or  association  under  the 
provisions  of  section  eleven  and  section  thirteen  of  this  Act.  First 
mortgages  executed  to  Federal  land  banks  or  to  joint-stock  land 
banks  and  farm-loan  bonds  issued  under  the  provisions  of  this 
Act  shall  be  deemed  and  held  to  be  instrumentalities  of  the  Gov- 
ernment of  the  United  States,  and  as  such  they  and  the  income 
derived  therefrom  shall  be  exempt  from  Federal,  State,  munici- 
pal, and  local  taxation. 

Nothing  herein  shall  prevent  the  shares  in  any  joint-stock 
land  bank  from  being  included  in  the  valuation  of  the  personal 
property  of  the  owner  or  holder  of  such  shares  in  assessing  taxes 
imposed  by  authority  of  the  State  within  which  the  bank  is 
located,  but  such  assessment  and  taxation  shall  be  in  manner  and 
subject  to  the  conditions  and  limitations  contained  in  section 
fifty-two  hundred  and  nineteen  of  the  Revised  Statutes  with 
reference  to  the  shares  of  national  banking  associations. 

Nothing  herein  shall  be  construed  to  exempt  the  real  property 
of  Federal  and  joint-stock  land  banks  and  national  farm-loan  as- 
sociations from  either  State,  county  or  municipal  taxes  to  the 
same  extent  according  to  its  value  as  other  real  property  is  taxed. 

Since  the  decision  of  the  great  cases  of  McCulloch 
v.  Maryland,  4  Wheaton  316,  and  Osborn  v.  Bank, 
9  Wheaton  738,  it  is  no  longer  an  open  question  that 
Congress  may  establish  banks  for  national  purposes, 
only  a  small  part  of  the  capital  of  which  is  held  by 
the  Government,  and  a  majority  of  the  ownership 
in  which  is  represented  by  shares  of  capital  stock 
privately  owned  and  held;  the  principal  business  of 
such  banks  being  private  banking  conducted  with 
the  usual  methods  of  such  business.  While  the  ex- 
press power  to  create  a  bank  or  incorporate  one  is 
not  found  in  the  Constitution,  the  court  speaking 
by  Chief-Justice  Marshall,  in  McCulloch  v.  Mary- 
land, found  authority  so  to  do  in  the  broad  general 

powers  conferred  by  the  Constitution  upon  the  Con- 
17 


252  THE   FEDERAL  FARM-LOAN 

gress  to  levy  and  collect  taxes,  to  borrow  money,  to 
regulate  commerce,  to  pay  the  public  debts,  to  de- 
clare and  conduct  war,  to  raise  and  support  armies, 
and  to  provide  and  maintain  a  navy,  etc.  Congress 
it  was  held  had  authority  to  use  such  means  as  were 
deemed  appropriate  to  exercise  the  great  powers  of 
the  Government  by  virtue  of  Article  I,  Section  8, 
Clause  18,  of  the  Constitution  granting  to  Congress 
the  right  to  make  all  laws  necessary  and  proper  to 
make  the  grant  effectual.  In  First  National  Bank  v. 
Union  Trust  Company,  244  U.  S.  416,  419,  the  Chief 
Justice,  speaking  for  the  court,  after  reviewing 
McCullough  v.  Maryland  and  Osborn  v.  Bank,  and 
considering  the  power  given  to  Congress  to  pass  laws 
to  make  the  specific  powers  granted  effectual,  said: 

In  terms  it  was  pointed  out  that  this  broad  authority  was  not 
stereotyped  as  of  any  particular  time  but  endured,  thus  furnish- 
ing a  perpetual  and  living  sanction  to  the  legislative  authority 
within  the  limits  of  a  just  discretion  enabling  it  to  take  into  con- 
sideration the  changing  wants  and  demands  of  society  and  to 
adopt  provisions  appropriate  to  meet  every  situation  which  it 
was  deemed  required  to  be  provided  for. 

That  the  formation  of  the  bank  was  required  in 
the  judgment  of  the  Congress  for  the  fiscal  opera- 
tions of  the  Government,  was  a  principal  considera- 
tion upon  which  Chief-Justice  Marshall  rested  the 
authority  to  create  the  bank;  and  for  that  purpose 
being  an  appropriate  measure  in  the  judgment  of 
the  Congress,  it  was  held  not  to  be  within  the 
authority  of  the  court  to  question  the  conclusion 
reached  by  the  legislative  branch  of  the  Government. 

Upon  the  authority  of  McCullough  v.  Maryland 


SYSTEM   IN   OPERATION  253 

and  Osborn  v.  Bank  the  national  banking  system 
was  established,  and  upon  them  this  court  has  rested 
the  constitutionality  of  the  legislation  establishing 
such  banks.  Farmers  &  Mechanics  National  Bank 
v.  Deering,  91  U.  S.  29,  33,  34. 

Congress  has  seen  fit  in  Section  6  of  the  Act  to 
make  both  classes  of  banks,  when  designated  for 
that  purpose  by  the  Secretary  of  the  Treasury,  de- 
positaries of  public  money,  except  receipts  from  cus- 
toms, under  regulations  to  be  prescribed  by  the 
Secretary  of  the  Treasury,  and  has  authorized  their 
employment  as  financial  agents  of  the  Government, 
and  the  banks  are  required  to  perform  such  reason- 
able duties,  as  depositaries  of  public  moneys  and 
financial  agents  as  may  be  required  of  them.  The 
Secretary  of  the  Treasury  shall  require  of  the  Fed- 
eral Land  Banks  and  the  Joint  Stock  Land  Banks, 
thus  designated,  satisfactory  security,  by  the  deposit 
of  United  States  bonds  or  otherwise,  for  the  safe- 
keeping and  prompt  payment  of  the  public  money 
deposited  with  them,  and  for  the  faithful  perform- 
ance of  their  duties  as  the  financial  agents  of  the 
Government. 

Section  6  also  provides  that  no  Government  funds 
deposited  under  the  provisions  of  the  section  shall 
be  invested  in  mortgage  loans  or  farm-loan  bonds. 

It  is  said  that  the  power  to  designate  these  banks 
as  such  depositaries  has  not  been  exercised  by  the 
Government,  and  that  the  Federal  Land  Banks  have 
acted  as  Federal  agents  only  in  the  case  of  loans  of 
money  for  seed  purposes  made  in  the  summer  of 
1 9 1 8,  to  which  we  have  already  referred.     But  the 


254  THE  FEDERAL  FARM-LOAN 

existence  of  the  power  under  the  Constitution  is  not 
determined  by  the  extent  of  the  exercise  of  the 
authority  conferred  under  it.  Congress  declared  it 
necessary  to  create  these  fiscal  agencies,  and  to  make 
them  authorized  depositaries  of  public  money.  Its 
power  to  do  so  is  no  longer  open  to  question. 

But,  it  is  urged,  the  attempt  to  create  these  Fed- 
eral agencies,  and  to  make  these  banks  fiscal  agents 
and  public  depositaries  of  the  Government,  is  but  a 
pretext.  But  nothing  is  better  settled  by  the  deci- 
sions of  this  court  than  that  when  Congress  acts 
within  the  limits  of  its  constitutional  authority,  it 
is  not  the  province  of  the  judicial  branch  of  the 
Government  to  question  its  motives.  Veazic  Bank 
v.  Fcnno,  8  Wall.  533,  541 ;  McCray  v.  United  States, 
195  U.  S.  27;  Flint  v.  Stone-Tracy  Co.,  220  U.  S.  107, 
147,  153,  156  and  cases  cited. 

That  Congress  has  seen  fit  to  make  of  these  banks 
fiscal  agencies  and  depositaries  of  public  moneys, 
and  also  to  grant  to  them  banking  powers  of  a  limited 
character,  in  nowise  detracts  frcm  the  authority  of 
Congress  to  use  them  for  the  governmental  purposes 
named,  if  it  sees  fit  to  do  so.  A  bank  may  be  organ- 
ized with  or  without  the  authority  to  issue  currency. 
It  may  be  authorized  to  receive  deposits  in  only  a 
limited  way.  Speaking  generally,  a  bank  is  a  mon- 
eyed institution  to  facilitate  the  borrowing,  lending 
and  caring  for  money.  But  whether  technically 
banks,  or  not,  these  organizations  may  serve  the 
governmental  purposes  declared  by  Congress  in  their 
creation.  Furthermore,  these  institutions  are  organ- 
ized to  serve  as  a  market  for  United  States  Bonds. 


SYSTEM   IN   OPERATION  255 

Not  less  than  5%  of  the  capital  of  the  Federal  Land 
Banks,  for  which  stock  is  outstanding  in  Farm  Loan 
Associations,  is  required  to  be  invested  in  United 
States  Bonds.  Both  kinds  of  banks  are  empowered 
to  buy  and  sell  United  States  Bonds. 

In  First  National  Bank  v.  Trust  Company,  244 
U.  S.,  supra,  this  court  sustained  the  power  of  Con- 
gress to  enable  a  national  bank  to  transact  business, 
which,  by  itself  considered,  might  be  beyond  the 
power  of  Congress  to  authorize.  In  that  case  it  was 
held  to  be  within  the  authority  of  Congress  to  permit 
national  banks  to  exercise,  by  permission  of  the 
Federal  Reserve  Board,  when  not  in  contravention 
of  local  law,  the  office  of  trustee,  executor,  adminis- 
trator or  registrar  of  stocks  or  bonds. 

We,  therefore,  conclude  that  the  creation  of  these 
banks,  and  the  grant  of  authority  to  them  to  act  for 
the  Government  as  depositaries  of  public  moneys 
and  purchasers  of  Government  bonds,  brings  them 
within  the  creative  power  of  Congress  although  they 
may  be  intended,  in  connection  with  other  privileges 
and  duties,  to  facilitate  the  making  of  loans  upon 
farm  security  at  low  rates  of  interest.  This  does  not 
destroy  the  validity  of  these  enactments  any  more 
than  the  general  banking  powers  destroyed  the 
authority  of  Congress  to  create  the  United  States 
bank,  or  the  authority  given  to  national  banks  to 
carry  on  additional  activities,  destroyed  the  author- 
ity of  Congress  to  create  those  institutions. 

In  the  brief  filed  upon  reargument  counsel  for  the 
appellant  seem  to  admit  the  power  of  Congress  to 
appropriate  money  for  the  direct  purposes  named 


256  THE  FEDERAL  FARM-LOAN 

arid  in  that  brief  they  say:  "Tax  exemption  is  the 
real  issue  sought  to  be  settled  here."  Deciding,  as 
we  do,  that  these  institutions  have  been  created  by 
Congress  within  the  exercise  of  its  legitimate  author- 
ity, we  think  the  power  to  make  the  securities  here 
involved  tax  exempt  necessarily  follows.  This  prin- 
ciple was  settled  in  McCulloch  v.  Maryland,  and 
Osbom  v.  Bank,  supra. 

That  the  Federal  Government  can,  if  it  sees  fit  to 
do  so,  exempt  such  securities  from  taxation,  seems 
obvious  upon  the  clearest  principles.  But,  it  is  said 
to  be  an  invasion  of  state  authority  to  extend  the 
tax  exemption  so  as  to  restrain  the  power  of  the  state. 
Of  a  similar  contention  made  in  McCulloch  v.  Mary- 
land, Chief -Justice  Marshall  uttered  his  often  quoted 
statement : 

That  the  power  to  tax  involves  the  power  to  destroy;  that 
the  power  to  destroy  may  defeat  and  render  useless  the  power  to 
create;  that  there  is  a  plain  repugnance,  in  conferring  on  one 
government  a  power  to  control  the  constitutional  measures  of 
another,  which  other,  with  respect  to  those  very  measures,  is 
declared  to  be  supreme  over  that  which  exerts  the  control,  are 
propositions  not  to  be  denied.     (4  Wheaton  431.) 

The  same  principle  has  been  recognized  in  the 
National  Bank  Cases  declaring  the  power  of  the 
States  to  tax  the  property  and  franchises  of  national 
banks  only  to  the  extent  authorized  by  the  laws  of 
Congress.  Owcnsboro  Nat.  Bank  v.  Owcnsboro,  173 
U.  S.  664,  involved  the  validity  of  a  franchise  tax  in 
Kentucky  on  national  banks.  In  that  case  this 
court  declared  (pp.  668,  669)  that  the  States  were 
wholly  without  power  to  levy  any  tax  directly  or 


SYSTEM   IN   OPERATION  257 

indirectly  upon  national  banks,  their  property,  assets 
or  franchises,  except  so  far  as  the  permissive  legisla- 
tion of  Congress  allowed  such  taxation;  and  the 
court  declared  that  the  right  granted  to  tax  the  real 
estate  of  such  banks,  and  the  shares  in  the  names  of 
the  shareholders,  constituted  the  extent  of  the  per- 
mission given  by  Congress,  and  any  tax  beyond  these 
was  declared  to  be  void. 

In  Farmers'  Bank  v.  Minnesota,  232  U.  S.  516, 
this  court  held  that  a  State  may  not  tax  bonds  issued 
by  the  municipality  of  a  territory;  that  to  tax  such 
bonds  as  property  in  the  hands  of  the  holder  is,  in 
the  last  analysis,  an  imposition  upon  the  right  of  a 
municipality  to  issue  them. 

The  exercise  of  such  taxing  power  by  the  States 
might  be  so  used  as  to  hamper  and  destroy  the  exer- 
cise of  authority  conferred  by  Congress,  and  this 
justifies  the  exemption.  If  the  States  can  tax  these 
bonds  they  may  destroy  the  means  provided  for  ob- 
taining the  necessary  funds  for  the  future  operation 
of  the  banks.  With  the  wisdom  and  policy  of  this 
legislation  we  have  nothing  to  do.  Ours  is  only  the 
function  of  ascertaining  whether  Congress  in  the 
creation  of  the  banks,  and  in  exempting  these  securi- 
ties from  taxation,  Federal  and  State,  has  acted 
within  the  limits  of  its  constitutional  authority.  For 
the  reasons  stated,  we  think  the  contention  of  the 
Government,  and  of  the  appellees,  that  these  banks 
are  constitutionally  organized  and  the  securities  here 
involved  legally  exempted  from  taxation,  must  be 
sustained. 


258  THE   FEDERAL  FARM-LOAN 

It  follows  that  the  decree  of  the  District  Court  is 

Affirmed. 

Mr.  Justice  Brandeis  took  no  part  in  the  con- 
sideration or  decision  of  this  case. 

A  true  copy. 

Test: 

Clerk  Supreme  Court,  U.  S. 


INDEX 

Administrator, 

may  not  take  out  Federal  farm  loan,  59. 
Agency  system, 

replaced  by  national  farm-loan  associations,  12,  13. 
Agriculture, 

Federal  farm-loan  system  a  step  toward  solution  of  problems  of, 
100,  101. 

financing  of,  necessary  to  prosperity  of  rural  community,  100. 

importance  of,  100. 
Amendment, 

to  Farm  Loan  Act,  authorizing  Secretary  of  Treasury  to  buy 
bonds  at  par,  29,  30. 
Amortization, 

advantages  of,  to  farmer-borrower,  57,  58. 

definition  of  term,  55. 

all  Federal  farm  loans  carry  this  privilege,  55. 

a  feature  of  the  Federal  farm-loan  system,  50. 

increases  margin  of  security,  82. 

larger  payments  required  in  "specialized  farming  districts,"  56. 

necessary  to  the  farmer,  52,  55. 

payments  not  greater  than  ordinary  interest  payments  in  many 
states,  58. 

safeguards  holder  of  second  mortgage,  73. 
Applications, 

for  loans,  87. 

,  accumulated  by  banks,  34. 

,  appraised  and  passed  upon,  66,  67. 

,  not  received  during  suit-contesting  Act,  34. 

,  rejected  at  four  points  in  process  of  securing  loan,  75. 

,  rejected  because  of  unsatisfactory  title,  75. 

,  submitted  merely  to  secure  appraisal,  74. 

,  voluntarily  withdrawn,  75. 

Appraisal, 

applications,  submitted  merely  to  secure,  74. 

of  applications  by  national  farm-loan  associations,  66. 

charge  for,  fixed  by  farm-loan  board,  85. 


26o  THE   FEDERAL   FARM-LOAN 

Appraisal, — Continued 

correct,  essential  to  success  of  system,  63. 

of  land-bank  appraiser,  67. 

methods  of,  varied,  63. 

peculiar  difficulties  in,  in  New  England,  68. 

peculiar  problems  of  various  land  banks  in,  solved  by  co-operation 

of  Farm  Loan  Board,  68. 
personal  element  in,  63. 

,  affects  earning  power  of  farm,  64. 

,  determines  whether  loan  shall  be  liberal  or  con- 
servative, 64. 
,  in  a  national  system  of  land-mortgage  banking, 

65. 
,  less  important  than  the  real  security,  65. 

,  often  sufficient  ground  for  rejecting  loan,  65. 

practical  appraiser's  standards  of,  64. 

process  of,  66,  67 

provision  of  the  Act  concerning  basis  of,  64. 

ruling  of  Farm  Loan  Board  concerning,  64. 

scientific  appraiser's  standards  of,  63. 

systematic,  reduces  costs  of  inspecting  and  equalizes  them,  53. 

written  report  on,  by  loan  committee,  66. 
Appraisal  value,  see  Value,  appraisal,  and  Appraisal. 
Appraisement,  see  Appraisal 
Appraiser, 

land  bank,  67,  87. 

,  appointed  by  Farm  Loan  Board,  10. 

,  may  reject  loan,  75. 

and  see  Appraisal. 

"  Back-to-the-land  "  movement  unsuccessful,  100. 
Bank  of  Prussia, 

stock  of,  46. 
Banks, 

commercial,  principal  source  of  money  supply,  20. 

commercial,  use  by  land  banks  of  their  credit  with,  34,  35. 

co-operation  of,  with  Federal  farm-loan  system,  90,  91. 

government  regulation  of,  39. 

local,  effect  of  Federal  farm-loan  system  on,  58. 

Schulze-Delitzsch,  3. 
Banker, 

support  of  Federal  farm-loan  system  by  a,  88,  &). 
Bankers, 

fear  of  antagonizing,  by  forming  associations,  88. 

inability  to  make  long-term  loan,  91. 

local,  represented  at  hearings  1916,  8. 


INDEX  261 

Bankers, — Continued 

secretary-treasurers  of  16  per  cent  of  national  farm-loan  associa- 
tions, 90. 
Breeding  Associations, 

encouraged  by  land  banks,  96. 
Bonds, 

of  Prussian  Government,  price  of,  46,  47,  48. 

United  States,  capital  of  land  bank  invested  in,  93. 

,  a  market  for,  to  be  furnished  by  Federal  land  banks,  92. 

and  see  Federal  farm-loan  bonds,  debentures. 
Bond-houses, 

syndicate  of,  28,  32,  33. 

,  failure  to  renew  contract,  30. 

Bond  issues, 

authorized  by  Farm  Loan  Act,  25. 
Bond  sale, 

impossible  while  suit  pending  in  Supreme  Court,  34. 

projects  for,  31. 

and  see  Federal  farm-loan  bonds. 
Borrowers, 

qualifications  of,  58,  59,  72. 
Bureau  of  Census, 

reports  on  population,  99. 
Business  men, 

secretary-treasurers  of  30  per  cent  of  national  farm-loan  associa' 
tions,  90. 

California, 

fruit-growing  sections  of,  "specialized"  farming  districts,  56. 
Capital, 

seasonal  demands  for,  53. 

supply  of,  20. 

supply  of,  variation  in,  53. 
Capital  Stock, 

of  land  banks,  22,  40. 
Certificates, 

of  European  systems,  82. 

of  national  farm-loan  associations,  82,  83. 

,  advantage  of,  to  tenant  who  wishes  to  buy,  83. 

,  convertible  into  Federal  farm-loan  bonds,  82. 

,  intended  to  encourage  saving,  82. 

,  interest-bearing,  may  be  issued  by  national  farm-loan  asso- 
ciation, 82. 

,  none  issued  as  yet,  83. 

United  States,  capital  of  land  banks  invested  in,  93. 

,  security  for  issues  of  farm-loan  bonds,  94. 


262  THE   FEDERAL   FARM-LOAN 

Cheese  Factories, 

encouraged  by  land  banks,  96. 
Circulating  capital, 

farmer's,  uses  for,  50. 

irrelevant  to  a  discussion  of  the  Federal  farm-loan  system,  50. 
Collateral  trust  bonds, 

farm-loan  bonds  held  to  be,  38  n. 
Commercial  banks, 

see  Banks. 
Commission  or  Moss-Fletcher  Bill,  4. 
Commissioner  of  Farm  Loan  Board, 

quoted,  83,  84. 
Committee  or  Hollis-Bulkley  Bill,  5 
Condensing  stations, 

encouraged  by  land  banks,  96. 
Connecticut, 

co-operative  credit  association  in,  2,  3. 
Connecticut  Assembly, 

charter  granted  to  New  London  Society  by,  3. 
Constitutionality, 

of  Farm  Loan  Act,  suit  to  contest,  33,  34,  35,  44,  and  see 
Appendix  D. 
Co-operation, 

banks  and  Federal  farm-loan  system,  90,  91. 

of  borrowers,  replaces  agency  system,  12,  13. 

,  required  to  obtain  sufficient  credit,  79. 

,  the  fundamental  principle  of  rural-credit  systems  here 

and  abroad,  78. 

among  farmers,  desired  by  Congress,  84. 

of  Department  of  Agriculture  with  farm-loan  system,  94,  95,  97. 

embodied  in  the  system,  84. 

of  a  local  commercial  bank  with  the  Federal  farm-loan  system, 
87,  88. 

of  members  of  national  farm-loan  associations  for  other  purposes 
than  borrowing,  83,  84. 

obstacles  to,  merely  theoretical,  84,  85. 
Co-operative  associations, 

formation  of,  encouraged  by  land  banks,  96. 
Co-operative  creameries,  see  Co-operative  associations  and  Creameries. 
Co-operative  credit, 

New  London  society,  2. 

and  see  European  rural-credit  systems,  foreign  rural-credit  sys- 
tems, etc. 
Corporation, 

may  not  take  out  a  Federal  farm  loan,  59. 

national  farm-loan  association  is  a,  79. 


INDEX  263 

Cost, 

of  inspecting,  53. 

of  making  loan,  variation  in,  53. 

of  negotiating,  equalized  by  system,  54. 
Counties, 

number  of  farm-loan  associations  in  excess  of  number  of,  86. 
Creameries, 

co-operative,  encouraged  by  land  banks,  96. 

and  see  Co-operative  associations. 
Credit, 

association  for  improvement  of,  78,  79. 

Dairying, 

in  North  Dakota,  required  by  land  bank  ruling,  96,  97. 

in  Wisconsin,  promoted  by  national  farm-loan  association,  98. 
Debentures, 

definition  of,  37. 

distinguished  from  mortgage  bonds,  37. 

European,  38. 

European,  security  underlying,  38,  39. 

advantage  of,  in  Federal  farm-loan  system,  38. 

Federal  farm-loan  bonds  are,  37. 

of  Landschaft  of  Mecklenburg,  prices  on,  47. 

of  Pomerania,  prices  on,  46. 

of  Landschaft  of  Posen,  prices  on,  47. 

prices  of,  during  Napoleonic  wars,  46. 

of  Prussian  government,  prices  on,  46. 

of  East  Prussia,  prices  on,  46. 

of  West  Prussia,  prices  on,  46. 

of  Silesian  Landschaft,  prices  on,  47. 
Debenture  Companies, 

of  New  England  and  North  Atlantic  states,  38. 

,  compared  with  European, 

38.  39- 

,  defects  of,  39. 


Department  of  Agriculture, 

co-operation  with  farm-loan  system,  94,  95,  97. 

purpose  of,  94. 

represented  at  hearings  19 16,  8. 

statistics  of,  concerning  rate  of  interest,  52. 
Department  of  State, 

quotations  on  German  bonds  secured  through,  47.  ] 
Dividends, 

reloan  of,  for  purchase  of  dairy  cattle,  98. 

of  land  banks  in  year  ending  November  30,  1919,  71. 

restrictions  upon  paying  of,  70,  71. 


264  THE   FEDERAL  FARM-LOAN 

Double  Liability, 

keeps  up  a  member's  interest  in  association,  82. 

familiar  term  in  United  States,  81. 

of  members  of  farm-loan  associations,  42,  81. 

compared  with  unlimited  liability  in  European  co-operative  credit 
systems,  81. 

possibility  of  its  operation  remote,  82 
Double  taxation,  44. 
Drainage  projects, 

difficulties  in  making  loans  on,  61. 

fixed  annual  charge  for,  to  be  considered  as  municipal  or  school 
district  tax  upon  land  appraised,  60,  61. 

Earning  Power, 

affected  by  personal  element,  64. 

net,  used  to  determine  value,  63,  64. 

principal  factor  in  determining  appraisal  value  under  the  Act, 
65,  66. 

relation  of,  to  sale  value,  66 
East  Prussia,  see  Prussia. 
England, 

the  debenture  bond  in,  38. 
Equipment, 

definition  of  term,  60. 
European  rural-credit  systems, 

commission  for  examination  of,  4. 

,  reports  in  favor  of  tax-exemption,  43. 

loans  from  deposits,  83. 

originally  for  benefit  of  limited  class  of  borrowers,  78. 

principles  of,  followed  by  authors  of  Federal  farm-loan  Act,  39, 
40,  78. 

unlimited  liability  of  members,  81. 
European  experience, 

in  land-mortgage  bond  issues,  25,  27. 
European  land-mortgage  banks, 

debentures  sold  by,  38. 
Executor, 

may  not  take  out  a  Federal  farm  loan,  59. 
Experience  table,  54. 

Farm, 

definition  of,  61,  62. 
Farmers, 

financial  needs  of,  51. 

represented  at  hearings  1916,  8. 


INDEX  265 

Farmers, — Continued 

secretary-treasurers  of  43  per  cent  of  national  farm-loan  associa- 
tions, 90. 

significance  to,  of  provisions  concerning  purposes  for  which  loans 
may  be  made,  94. 
Farm  land, 

securing  loans,  qualifications  of,  58,  60,  61. 
Farm  loans, 

costs  of  making,  under  farm-mortgage  system,  53. 

life  of,  before  establishment  of  system,  49. 

made  without  thought  of  redemption  from  earnings  of  the  land,  49. 

terms  of,  before  establishment  of  system,  49. 

and  see  Federal  farm  loans. 
Farm-loan  associations,  see  National  farm-loan  associations. 
Farm-loan  registrar, 

duties  of,  10,  40. 
Federal  Farm  Loans, 

on  amortization  plan,  55. 

amount  applied  for  to  October  31,  1920,  74. 

granted  to  October  31,  1920,  74. 

annual  volume  of  loans,  65. 

applications  for,  34,  66,  67,  74,  75,  and  see  Applications. 

average  amount  of  loan  varies  with  land  values  in  the  district,  76. 

costs  of  inspecting  reduced  and  equalized  with  systematic  ap- 
praising, 53. 

costs  of  making,  53. 

costs  of  negotiating  equalized,  54. 

data  on  sale  value  of  farms  securing,  compiled  by  Farm  Loan 
Board,  67,  68. 

life  of,  55  and  n. 

limitation  upon  amount  of,  to  one  borrower,  75,  76. 

may  be  rejected  at  four  points  in  process,  75. 

must  be  secured  by  first  mortgage,  58. 

not  government  loans,  74  and  n. 

not  made  on  worthless  security  or  for  speculative  purposes,  74. 

provisions  of  Act  concerning,  64,  65,  94. 

purposes  of,  59,  60,  94. 

,  not  to  include  refunding  of  mortgages  where  indebted- 
ness incurred  for  other  than  agricultural  purposes,  62. 

qualifications  of  borrower,  58,  59,  72. 

qualifications  of  farm  land  securing,  58,  60,  61. 

reasons  for  difference  between  amount  applied  for  and  amount 
granted,  74. 

reasons  for  rejection  of,  65,  75. 

rejection  of,  in  case  of  unsatisfactory  title,  75. 

restriction  upon,  59,  64,  65. 


266  THE   FEDERAL   FARM-LOAN 

Federal  Farm  Loans, — Continued 

standardization  of,  42. 

statement  of  purposes  for  which  employed,  62,  94. 
Federal  Farm  Loan  Act, 

amendment  to,  29,  30. 

broadly  interpreted  by  members  of  Farm  Loan  Board,  92. 

constitutionality  of,  suit  to  contest,  33,  34. 

co-operation  for  other  than  borrowing  purposes,  encouraged  by, 

provisions  of,  concerning  amount  of  loan  in  proportion  to  ap- 
praisal value,  64. 

,  concerning  basis  of  appraisal,  64. 

,  concerning  capital  stock  of  land  banks,  22,  26. 

,  concerning  bond  issues,  limitation  upon,  25. 

,  concerning  functions  of  land  banks,  92. 

-,  concerning  investment  of  land  bank  capital  in  United 

States  bonds,  93. 

,  concerning  liability  of  land  banks,  84. 

,  concerning  qualifications  of  borrower,  72. 

,  concerning  reserves  of  Federal  land  banks,  70,  71. 

1 of  national  farm-loan  associations,  7 1 . 

,  concerning  security  of  Federal  farm-loan  bonds,  37. 

■,  concerning  voting  power  of  members  in  national  farm- 


loan  associations,  81. 

restrictions  upon  issues  of  bonds  similar  to  restrictions  in  Euro- 
pean institutions,  40. 

validity  of,  United  States  Supreme  Court  decision  concerning, 
tax-exemption  feature  of,  44. 
Federal  Farm  Loan  Board, 

activities  of,  7. 

appointment  of  members,  7. 

charge  for  appraisal  fixed  by,  85. 

co-operation  with  land  banks  in  solving  problem  of  appraisal,  68. 

composition  of,  7. 

control  of  entire  system  by,  7. 

data  compiled  by,  on  sale  values  of  farms  securing  Federal  farm 
loans,  67,  68. 

Farm  Loan  Act  broadly  interpreted  by,  92. 

Federal  Farm  Loan  Bureau  supervised  by,  7. 

may  reject  loan,  75. 

objections  of,  to  sale  of  bonds  through  syndicates,  33. 

proposal  of,  for  sale  of  bonds  through  single  bond-house,  33. 

rate  of  interest  established  by,  28. 

report  of,  on  occupations  of  secretary-treasurers,  90. 

ruling  of,  on  appraisal,  64. 

,  on  insurance,  69. 


INDEX  267 

Federal  Farm  Loan  Board, — Continued 

,  on  questions  arising  in  formation  of  national  farm- 
loan  associations,  85. 

-,  on  requirement  of  Farm  Loan  Act  that  a  borrower 


must  be  a  cultivator,  72. 

statement  of,  concerning  dividends  in  year  ending  November  30, 
1919,  71. 

,  concerning  financial  condition,  October  31,  1920,  74. 

,  concerning  purposes  for  which  loans  used,  62. 

syndicate  for  sale  of  Federal  farm-loan  bonds,  formed  by,  28. 
Federal  Farm  Loan  Bonds, 

competition  of,  with  other  bonds,  45. 

constitute  7  per  cent  of  tax-free  securities  outstanding,  45. 

convenient  to  investor,  41. 

debentures,  37. 

denominations  of,  41. 

held  to  be  collateral  trust  bonds,  38  n. 

issues  of,  24,  25. 

,  authorized  by  Farm  Loan  Act,  25. 

life  of,  41. 

as  long-term  investments,  26,  27. 

made  legal  investment  for  trust  funds,  27. 

prices  of,  32,  33. 

proposals  for  future  sale  of,  35,  36. 

rate  of  interest  on,  to  April  30,  19 18,  31,  and  see  Rate  of  Interest. 

redemption  of,  41. 

sale  of,  31,  33. 

,  during  World  War,  29. 

,  through  single  bank,  proposed,  33. 

,  through  syndicates,  objections  to,  32,  33. 

Secretary  of  Treasury,  purchase  of  bonds  by,  29. 

security  underlying,  25,  37,  38,  42,  53,  85. 

sale  of,  in  advance  of  loans,  37. 

,  by  a  syndicate,  28. 

stability  of,  prophesied,  47. 

tax-exempt,  43. 
Federal  Farm  Loan  Bureau,  7. 
Federal  Farm  Loan  System, 

assistance  of  Department  of  Agriculture  to,  97. 

co-operation  of,  with  Department  of  Agriculture,  94,  95. 

co-operation  of  banks  with,  90,  91. 

and  see  Co-operation. 

cost  of  inspecting  under,  53. 

cost  of  negotiating  loans  under,  54. 

distinctive  features  of,  50. 

,  reflect  foreign  experience,  50. 

18 


268  THE   FEDERAL  FARM-LOAN 

Federal  Farm  Loan  System, — Continued 

distributes  risk,  54. 

effect  on  local  banks,  58. 

personal  element  in  appraisal  under,  63. 

established,  I. 

compared  with  foreign  rural-credit  systems,  78. 

and  the  Landschaften  of  Germany,  78. 

operation  of,  under  supervision  of  government,  7. 

safeguards  provided  by,  40. 

a  step  toward  the  solution  of  the  problems  of  agriculture,  100,  101 . 
Federal  Land  Banks, 

capital  of,  invested  in  United  States  bonds,  93. 

,  invested  in  United  States  certificates  of  indebtedness, 

93- 

capital  reserves  and  earnings  of,  secure  mortgages,  4a. 

capital  stock  of,  22. 

,  tax-exempt,  44. 

co-operative  associations  encouraged  by,  96. 

co-operatively  owned  by  national  farm-loan  associations,  84. 

dividends,  71. 

emergency  created  by  failure  of  syndicate  of  bond-houses  to  re- 
new contracts  with,  30. 

established  by  Farm  Loan  Board,  7. 

evidence  collected  by,  concerning  appraisal  value  of  farm,  67. 

expenses  of,  70. 

• ,  partly  met  by  fees,  70. 

final  appraisal  conducted  by,  67. 

financial  agents  of  the  United  States,  92. 

functions  of,  12,  92. 

good-roads  movements  encouraged  by,  96. 

gross  profit  of,  70. 

holding  of  stock  of,  by  farmer  borrowers  assures  low  rate  of  in- 
terest, 80,  81. 

interest  paid  on  bonds,  28. 

insurance  policies  written  by,  69. 

joint  liability  of,  84. 

legal  departments  of,  95. 

may  reject  loan,  75. 

location  of,  9. 

net  profit  of,  70. 

organization  of,  10. 

profit  of,  70. 

provision  for  raising  funds,  24. 

purpose  of,  service  rather  than  profits,  73. 

reserves  of,  70,  71. 

seed-grain  loans  made  through,  92. 


INDEX  269 

Federal  Land  Banks, — Continued 

statement  of  Farm  Loan  Board  concerning  dividends  of,  in  year 
ending  November  30,  19 19,  71. 

stock  of,  held  by  borrowers,  71,  80. 

terracing  encouraged  and  in  some  cases  required  by,  97. 
Federal  Land  Bank  Districts, 

establishment  of,  7. 
Federal  Land  Bank  of  Saint  Paul, 

ruling  of,  concerning  livestock  raising  and  dairying  in  North 
Dakota,  96,  97. 
Federal  Reserve  Act, 

amendments  necessary,  5. 

Federal  Farm  Loan  Act  follows,  in  exempting  capital  of  banks 
from  taxation,  44. 

and  rural  credit,  21. 
Federal  Reserve  System, 

service  to  business  world,  51. 
Fees, 

upon  application  for  loans,  74. 

to  Federal  land  banks  for  appraisement  and  examination  of  title, 
70. 

for  title,  very  low,  95. 
First  mortgage, 

Federal  farm  loan  must  be  secured  by,  58. 
Fixed  capital,  50. 
Foreclosure, 

under  Federal  farm-loan  system,  73. 

on  second  mortgage,  73. 

only  two  instances  of,  reported  by  the  Federal  Farm  Loan  Board, 
67. 
Foreign  rural-credit  systems,  see  European  rural-credit  systems. 

Germany, 

Government  bonds  of,  prices  on,  during  World  War,  47,  48. 

land-mortgage  bonds  in,  prices  during  World  War,  47,  48. 

Landschaften  of,  some  principles  of,  embodied  in  the  farm-loan 
system,  78. 

rural-credit  systems,  3. 

United  States  embassy  in,  to  investigate  land  credit  there,  4. 
Good-roads  movements, 

encouraged  by  Federal  land  banks,  96. 
Government  bonds, 

prices  of,  in  Germany  during  World  War,  47,  48. 

and  see  United  States  government  bonds. 
Government  regulation, 

of  banks  and  insurance  companies,  39. 


270  THE   FEDERAL  FARM-LOAN 

Guardian, 

may  not  take  out  a  Federal  farm  loan  unless  father,  mother,  hus- 
band or  wife  of  ward,  or  holding  joint  interest  in  ward's 
property,  59. 

Hearings, 

conducted  by  Farm  Loan  Board,  1916,  8. 
Hollis-Bulkley  or  Committee  Bill,  5. 

Illinois, 

risk  in  making  ioan  in,  contrasted  with  risk  in  Minnesota,  54. 
Improvement, 

definition  of  term,  60. 
"Infant"  industries, 

and  the  tariff,  45. 
Inflation, 

in  land  values,  39,  40. 

,  discounted  in  appraisal,  66. 

Inspecting, 

cost  of,  53. 
Insurance,  41. 

amount  required  by  land  bank,  69. 

companies  in  which  held,  69. 

difficulty  of  securing,  in  poor  or  remote  sections,  69. 

Farm  Loan  Board,  rulings  on,  69  n. 

Federal  land  banks  encouraged  to  write,  69. 

objections  to  writing  of,  by  Federal  land  banks,  70. 
Insurance  companies, 

government  regulation  of,  39. 
Insurance  of  title,  95. 
Interest, 

on  bonds,  paid  by  land  banks,  28. 
Interest  payments, 

on  Federal  farm-loan  bonds,  40. 
Interest  rate,  see  Rate  of  Interest. 
Investment, 

in  farm-loan  bonds,  made  legal  for  trust  funds,  27. 
Investor, 

farm  loans  previously  made  to  suit  investor  rather  than  farmer,  49. 

Joint-stock  land  banks, 

under  Moss-Fletcher  or  Commission  Bill,  4. 
Joint-stock  land  banks,  see  Appendix  A,  103-110. 

Kansas  City  Title  and  Trust  Company, 
Smith  vs.,  44. 


INDEX  271 

Land  bank  appraiser,  see  Appraiser,  land  bank. 
Land  Banks,  see  Federal  land  banks. 
Land  mortgage  bonds, 

convertibility  "f,  25. 

European  experience  in,  25,  27. 

prices  of,  in  Germany  during  World  War,  47,  48. 

stability  of,  25,  47. 

uniformity  of,  25. 
Lands, 

Western,  1 ,  46. 

,  values  increased  by  settlement,  2. 

Landschaften, 

some  principles  of,  embodied  in  Federal  farm-loan  system,  78. 

Silesian,  prices  on  debentures  of,  46,  47. 

of  Mecklenburg,  prices  on  debentures  of,  47. 

of  Posen,  prices  on  debentures  of,  47. 
Lawyers, 

secretary-treasurers  of  9  per  cent  of  national  farm-loan  associa- 
tions, 90. 
Legislation  of  states, 

making  Federal  farm-loan  bonds  legal  investment  for  trust  funds, 
27. 
Liability, 

in  European  co-operative  credit  systems,  81. 

of  every  land  bank  for  every  other  land  bank,  84. 

of  members  of  national  farm-loan  associations,  81. 

in  United  States  national  and  state  banks,  81. 

and  sec  double  liability,  and  unlimited  liability. 
Liberty  loan, 

third,  31. 
Livestock, 

raising  of,  in   North   Dakota,   required   by   land  bank  ruling, 
96,  97. 
Loan  committee, 

see  National  farm-loan  associations,  loan  committee. 
Loans, 

seed-grain,  made  through  Wichita,  Spokane,  and  St.  Paul  land 
banks,  92,  93. 

and  see  Federal  farm  loans. 
Long-term  credit, 

purpose  of  Federal  farm-loan  system  to  establish,  I. 
Long-term  investment, 

desirability  of  land-mortgage  bonds  as,  47. 

Federal  farm-loan  bonds,  desirability  of,  as,  26,  27. 
Long-term  loans, 

supplied  to  farmers  by  Federal  farm-loan  system,  91. 


272  THE  FEDERAL  FARM-LOAN 

Marketing  of  bonds, 

necessity  for,  27. 

and  see  Sale. 
Mecklenburg, 

Landschaft  of,  prices  on  debentures  of,  47. 
Merchant  marine, 

subventions  to,  45. 
Minnesota, 

risk  in  making  loan  in,  contrasted  with  risk  in  Illinois,  54. 
Missouri, 

equity  proceeding  in  district  court  of,  to  contest  constitutionality 
of  Farm  Loan  Act,  34. 
Montana, 

average  rate  of  interest  on  farm-mortgage  loans  in,  52. 
Mortgages, 

upon  crops,  security  for  seed-grain  loans,  93. 

held  by  land  banks,  exempt  from  taxation,  43,  44. 

inconvenience  to  investor  in  purchase  of,  41. 

of  New  London  Society,  2. 

not  to  be  refunded  by  Federal  farm  loans  unless  incurred  for 
agricultural  purposes,  62. 

pledged  as  collateral  to  farm-loan  bonds,  security  underlying, 
42. 

practise  of  substituting,  in  early  debenture  companies,  39. 

and  see  Second  mortgage. 
Mortgage  bonds,  distinguished  from  debentures,  37. 
Moss-Fletcher  or  Commission  Bill,  4. 

Napoleonic  wars, 

prices  on  land  debentures  during,  46. 
National  farm-loan  associations, 

admission  of  members,  79. 

agency  system  replaced  by,  12,  13. 

amount  of  loans,  85. 

applications  for  loans  appraised  by,  66. 

attempts  to  form,  merely  for  the  purpose  of  getting  "  easy  money," 
86. 

authorized  to  issue  certificates,  82. 

board  of  directors  of,  79. 

,  passes  on  appraisal  report  of  loan  commit 

tee,  66. 

capital  reserves  and  earnings  of,  secure  mortgages,  42. 

capital  stock  in  land  banks,  24. 

certificates,  see  Certificates. 

composition  of,  17. 

co-opc  ative  efforts  of,  98. 


INDEX  273 

National  farm-loan  associations, — Continued 

co-operatively  owned  by  members,  84. 

corporations,  79. 

dividends,  71. 

,  reloaned,  98. 

double  liability  of  members,  42,  81. 

excluding  the  shiftless  from  membership  in,  87. 

extent  of  territory,  85. 

functions,  14,  16,  17. 

future  additions  to  membership  in,  to  come  within  existing  asso- 
ciations, 86. 

loan  committee  of,  appraises  application  for  loan,  66. 

,  submits  written  report  on  value  of  farm,  charac- 
ter of  applicant,  etc. 

compensation  of  members  fixed  by  Farm  Loan  Board,  85. 

may  reject  loan,  75. 

members  encouraged  to  co-operate  for  other  than  borrowing  pur- 
poses, 83,  84. 

number  of  members,  fixed  by  Farm  Loan  Board,  85. 

most  desirable  size,  fixed  by  Farm  Loan  Board,  85. 

number  organized  during  first  year,  85,  86. 

second  year,  86. 

third  year,  86. 

number  not  increasing  and  why,  86. 

number  on  December  31,  1920,  86. 

officers  of,  79. 

organization  of  new  associations  practically  complete,  86. 

problems  in  forming,  85. 

qualifications  for  membership  in,  58,  59,  72. 

qualifications  for  membership  in,  encourage  good  farming,  80. 

reserves  of,  71. 

secretary-treasurers  of,  see  Secretary-treasurers. 

self-governing  in  local  affairs,  79. 

voting  power  of  members,  81. 
Nationality,  85. 
New  England, 

debentures  sold  in,  38. 

farm  appraisal  in,  68. 
New  London  Society  United  for  Trade  and  Commerce  (Connecticut), 

2,3- 

New  Mexico, 

average  rate  of  interest  on  farm-mortgage  loans  in,  52. 
Norris,  G.  W., 

former  commissioner  of  Farm  Loan  Board,  quoted,  83,  84. 
North  Atlantic  States, 

debentures  sold  in,  38. 


274  THE   FEDERAL  FARM-LOAN 

North  Dakota, 

co-operation  in  an  association  in  western,  98. 

crop  failures  in,  96. 

dairying  promoted,  98. 

livestock  raising  and  dairying  in,  required  by  land  bank  ruling, 

96,  97. 
report  of  State  Agricultural  College,  97. 

"One-crop"  districts,  9. 

Orchards,  valuation  of,  for  Federal  farm  loans,  61. 

Organization, 

temporary  board  of,  of  land  banks,  5,  10. 
Organizations, 

farmers',  represented  at  hearings,  1916,  8. 

Pasture  land,  appraisal  of,  60. 

Personal  element  in  appraisal,  see  Appraisal. 

Personal  security, 

determines  whether  a  loan  shall  be  liberal  or  conservative,  64. 

less  important  than  real  security,  63,  65. 

under  a  national  system,  65. 
Pomerania, 

prices  on  land  debentures  of,  46. 
Population, 

Bureau  of  Census  reports  on,  99. 

cityward  trend  of,  98,  99,  100. 
Posen, 

Landschaft  of,  prices  on  land  debentures,  47. 
Potato  warehouses, 

encouraged  by  land  banks,  96. 
President  of  the  United  States, 

appoints  four  members  of  Federal  Farm  Loan  Board,  7. 

appropriated  $5,000,000  for  seed-grain  loans,  92,  93. 
Prices  prevailing  in  community,  a  factor  in  determining  appraisal 

value  of  land,  64. 
Profit, 

items  in  gross  annual,  of  land  banks,  70. 

net,  of  land  banks,  70. 
Prussia, 

bank  of,  stock,  46. 

government  bonds,  prices  of,  46,  47,  48. 

government  railroads  of,  stock,  46. 

prices  on  land  debentures  of,  46. 
East  Prussia, 

prices  on  land  debentures  of,  46. 


INDEX  275 

West  Prussia, 

prices  on  land  debentures  of,  46. 
Public  domain,  2,  46. 

Race,  85. 
Railroads, 

of  Prussia,  stock,  46. 

transcontinental,  and  land  grants,  45. 
Rate  of  interest, 

average,  on  farm-mortgage  loans  52. 

to  borrowers,  32. 

,  affected  by  5  per  cent  enforced  stock-holding  and  by 

dividends  on  that  stock,  71. 

-,  fixed  by  Farm  Loan  Act,  52. 


established  by  Farm  Loan  Board,  28. 

on  Federal  farm-loan  bonds,  32. 

,  to  April  30,  1918,  31. 

,  reduced  by  tax-exempt  feature  of  bonds,  43. 

,  standardized,  52,  53. 

influence  of  borrower-stockholders  in  determining,  80,  81. 

on  land  mortgages,  reasons  for  variation  in,  53,  54. 

on  land-mortgage  bonds,  25. 

on  loans,  71. 

on  railroad  bonds  and  industrials,  45. 

uniform,  advocated  in  spite  of  variations  in  risk,  54. 

■ ,  a  feature  of  the  Federal  farm-loan  system,  50. 

,  throughout  United  States  to  borrowers  under  Federal  Farm 

Loan  Act,  52. 

variation  in,  on  farm-mortgage  loans,  53. 

variation  in,  with  risk,  53,  54. 
Registrar,  see  Farm-loan  registrar. 
Religion,  85. 
Repayment  of  farm  loans, 

from  earnings  of  land,  49,  55. 

1  impossible  if  term  too  short,  51. 

Reserves, 

of  land  banks,  40. 
Revolution  of  1848, 

prices  on  land  debentures  during,  46. 
Risk, 

distributed,  by  Federal  farm-loan  system,  54. 

in  making  loan  in  Minnesota  and  in  Illinois,  compared,  54. 

variation  in,  causes  variation  in  interest  rate,  53,  54. 
Rural-credit  institutions, 

New  London  Society,  q.v.,  2,  3. 

state,  a  failure,  3. 


276  THE  FEDERAL  FARM-LOAN 

Rural-credit  institutions, — Continued 

and  see  European  rural-credit  institutions. 

Saint  Paul, 

Federal  Land  Bank  of,  92. 

,   ruling   concerning   livestock   raising   and 

dairying  in  North  Dakota,  96,  97. 

■ — ,  amount  of  seed-grain  loans  made  through,  93. 
assisted  by  agents  of  Department  of  Agri- 


culture, 94. 
Salability, 

of  land,  a  factor  in  determining  its  appraisal  value,  64. 

discounted  by  appraisers  in  case  of  inflated  values,  66. 

ruling  of  Farm  Loan  Board  concerning,  64. 

relation  of,  to  earning  power,  66. 

see  Sale  value. 
Sale, 

of  Federal  farm-loan  bonds,  proposal  for  future,  35,  36. 

,  during  war,  29. 

,  through  syndicate  not  satisfactory,  32. 

,  through  single  bank,  proposed,  33. 

,  in  advance  of  loans,  37. 

Sale  value, 

of  farms  securing  Federal  farm  loans,  data  on,  67,  68. 

inflation  in,  discounted  by  appraisers,  66. 

of  land,  a  factor  in  determining  its  appraisal  value,  64. 

relation  of,  to  earning  power,  66. 
Saving, 

certificates  issued  by  national  farm-loan  associations  to  encour- 
age, 82. 
Savings  banks,  83. 
Schulz-Delitzsch  banks,  3. 
Seasonal  demands  for  funds,  53. 

raises  interest  rate,  53. 
Second  mortgage, 

advantages  to  holder  of,  under  Federal  farm-loan  system,  73. 

security  of,  73. 

taken  at  sale  of  land  to  tenant-borrower,  72. 
Secretary  of  Agriculture, 

request  of,  for  appropriation  for  seed-grain  loans,  93. 
Secretary  of  Treasury  of  United  States, 

ex-officio  chairman  of  Federal  Farm  Loan  Board,  7. 

authorized  by  Farm  Loan  Board  to  buy  bonds  at  par. 
Secretary-treasurer, 

advantage  of,  who  is  resident  where  association  has  headquarters, 
90. 


INDEX  277 

Secretary-treasurer, — Continued 

compensation  fixed  by  Farm  Loan  Board,  85. 

co-operative  efforts  of,  in  a  northern  Wisconsin  association,  98. 

co-operative  efforts  of,  in  a  western  North  Dakota  association,  98. 

duties  of,  79. 

necessary  qualities  of,  89,  90. 

occupations  of,  90. 

success  of  association  dependent  upon,  89. 
Security, 

personal,  more  important  than  real,  65. 

underlying  Federal  farm-loan  bonds,  42. 

standardized,  42. 
Seed-grain  loans, 

made  through  Federal  land  banks  of  Wichita,  Spokane,  and 
Saint  Paul,  92,  93. 
Seventh  Federal  Land  Bank  District, 

co-operation  of  banks  in,  90. 

secretary-treasurers  in,  90. 

and  see  Loans. 
Sheep-raising, 

encouraged  by  a  secretary-treasurer  in  North  Dakota,  98. 
Short-term  loans, 

supplied  to  farmers  by  county  banks,  91. 
Silesian  Landschaft, 

prices  on  debentures  of,  46,  47. 
Small  cultivators, 

rather  than  large  to  be  financed  by  system,  72. 
Smith, 

vs.  Kansas  City  Title  and  Trust  Company,  44. 
Southern  Commercial  Congress,  4. 
Speculation, 

no  Federal  farm  loans  for,  74,  80. 
Spokane, 

Federal  Land  Bank  of,  92. 

1  amount  of  seed-grain  loans  made  through, 

93- 

-,  assisted  by  agents  of  Department  of  Agri- 


culture, 94. 
Standardization , 

of  credit  and  of  form  of  security  under  Federal  farm-loan  system,  42. 
State  Agricultural  College  of  North  Dakota, 

report  of,  97. 
State  banks, 

double  liability  of  members,  81. 
Stock  raising, 

encouraged  by  a  secretary-treasurer  in  North  Dakota,  98. 


2 78  THE   FEDERAL  FARM-LOAN 

Subventions, 

to  merchant  marine,  45. 

supply  of  capital,  variation  in,  53. 
Supreme  Court  of  the  United  States, 

decision  concerning  constitutionality  of  Farm  Loan  Act,  34. 

,  delay  in  rendering,  35. 

suit  concerning  constitutionality  of  Farm  Loan  Act,  34. 

and  see  Appendix  D. 
Syndicate, 

of  bond  houses  for  sale  of  Federal  farm-loan  bonds,  28,  32. 

■ ,  failure  to  renew 

contract,  30. 

,  objection  to  sale 


of  bonds  through,  32,  33. 
Tariff, 

protective,  and  "infant  industries,"  45. 
Tax-exemption, 

of  Federal  farm-loan  bonds,  43. 

,  argument  for,  45. 

■ ,   commission   for  examining  foreign   rural- 
credit  systems,  reports  in  favor  of,  43. 

,  essential  to  farm-loan  system,  46. 

,  reason  for,  45. 

-,  validity  of,  in  Farm  Loan  Act,  Supreme 


Court  decision  concerning,  44,  and  see  Supreme  Court  and 
Appendix  D. 

-,  vigorously  opposed,  44. 


Tax-free  securities, 

Federal  farm-loan  bonds  7  per  cent  of,  45. 

outstanding,  44,  45. 
Tenants, 

Federal  farm  loans  obtained  by,  72. 

national  farm-loan  association  certificates  an  advantage  to,  83. 

success  of  secretary-treasurers  in  assisting,  73. 
Term  of  Federal  farm  loans,  see  Federal  farm  loans. 
Terracing, 

encouraged  and  in  some  cases  required  by  land  banks,  97. 
Third  Liberty  loan,  31. 
Title, 

abstract  of,  to  be  furnished  by  applicant,  68,  85. 

,  corrected  by  legal  department  of  land  bank,  95. 

examined  by  land  bank,  69. 

fees  for  examination  of,  70. 

insurance  of,  95. 

unsatisfactory,  a  ground  for  rejection  of  application  for  loans,  75. 

validity  of,  41. 


INDEX  279 

Treasury  Department  of  the  United  States, 

Federal  Farm  Loan  Bureau  established  under,  7. 

capital  stock  in  land  banks,  19. 

purchase  of  Federal  farm-loan  bonds,  31. 
Trust  companies, 

Federal  farm-loan  bonds  made  legal  investment  for,  27. 

funds  of,  83. 
Trustee, 

may  not  take  out  Federal  Farm  Loan,  59. 
Turnover, 

of  the  farmer,  51. 

of  the  merchant  or  manufacturer,  51. 

United  States, 

bonds,  see  Bonds. 

farm  mortgage  debentures  in,  38. 

Federal  land  banks  as  agents  of,  92. 

Federal  land  banks  as  depositaries  for,  92. 

President  of,  authorized  European  investigation  in  land-credit 
systems,  3,  4. 

and  see  President  of  the  United  States. 

Commission  for  examining  foreign  rural-credit  systems,  4. 

,  declares  in  favor  of  tax- 
exemption,  43. 

Department  of  Agriculture  of,  see  Department  of  Agriculture. 

Department  of  State  of,  see  Department  of  State. 

support  of  government  of,  essential  to  system  during  Supreme 
Court  suit,  35. 

Supreme  Court,  see  Supreme  Court. 

Treasury,  see  Treasury. 
Unlimited  liability, 

in  European  co-operative  credit  systems,  81. 

Value, 

appraisal,  of  farm,  as  determined  by  scientific  appraiser,  63. 

1 ,  as  determined  by  practical  appraiser,  64. 

( ,  provision  of  Act  concerning,  64. 

( ,  ruling  of  Farm  Loan  Board  concerning,  64. 

and  see  Appraisal. 
Victory  Loan,  31. 
Voting  power, 

of  members  of  national  farm-loan  associations,  81. 

West, 

cheap  lands  in  the,  1,  46. 

,  values  increased  by  settlement,  2. 


28o  THE   FEDERAL  FARM-LOAN 

Wichita, 

Federal  Land  Bank  of,  92. 

,  amount  of  seed-grain  loans  made  through, 

93. 

-,  assisted  by  agents  of  Department  of  Agri- 


culture, 94. 
Wisconsin, 

dividends  of  an  association  in,  reloaned  for  purchase  of  dairy 
cattle,  98. 
World  War, 

prices  on  government  and  land-mortgage  bonds  in  Germany  dur- 
ing, 47.  48. 
sale  of  farm-loan  bonds  during,  29. 
Wyoming, 

Average  rate  of  interest  on  farm-mortgage  loans  in,  52. 


THE    END 


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